Fund managers are bullish, according to Bank of America’s (BofA) latest monthly fund manager survey, but they’re not exuberant.
There are many signs investors are not positioned for bad news. A large majority (72 per cent) expect inflation to be transitory; 68 per cent don’t expect a recession before 2024; a record 76 per cent say this is an early-cycle boom.
Regarding positioning, 61 per cent are overweight global stocks, well above historical norms. Most (57 per cent) say any market decline will likely be less than 10 per cent. The number taking above-average risk is near February’s record high.
Cash levels have fallen to 3.9 per cent; triggering a sell on BofA’s cash rule, as low cash levels have historically been associated with poor one-month returns.
Investors are especially bullish towards Europe. Although Europe’s rally since March has been the sharpest in two decades, an increasing majority think more is to come in the second half of 2021.
The number overweight European stocks is the highest since February 2018, while four times as many investors think reducing European exposure is a bigger risk than not having defensive hedges in place.
All that said, BofA’s Bull & Bear Indicator has fallen to 6.5 and is below the 8.0 level that triggers a sell signal. As for Europe, most think stocks are overvalued; three-quarters think earnings will miss analysts’ heady growth expectations; only 11 per cent expect further double-digit upside for European stocks by year-end.
In short, investors are bullish, but they haven’t lost the run of themselves yet.
