Stocktake: Fund managers are so bearish, it’s bullish

Investor pessimism has hit “dire” levels, with the mood one of “full capitulation”. That’s according to Bank of America (BofA) following its latest monthly fund manager survey, which shows bearishness at extreme levels.

Cash levels have surged to 6.1 per cent – a 21-year high, even exceeding levels seen in the aftermath of Lehman Brothers’ collapse in October 2008. Similarly, the percentage of managers expecting profits to deteriorate is at all-time highs, as is the percentage of investors who say they are taking lower-than-normal risk levels.

Equity allocations have plunged to their lowest level since October 2008 and are now almost three standard deviations below normal levels. Stock allocations relative to bonds are also at levels unseen since the global financial crisis.

Unsurprisingly, given the ongoing war in Ukraine, investors are especially wary about Europe, with allocations towards European stocks at their lowest level since 2012′s sovereign debt crisis.

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The net result is BofA’s Bull and Bear indicator is at a “max bearish” score of zero. BofA says any reading below 2.0 triggers a contrarian buy alert, as washed-out sentiment readings are associated with increased chances of a snapback rally. To borrow from the title of BofA’s report, “I’m so bearish, I’m bullish.”