Global sentiment isn’t excessive but fund managers may be getting too enthusiastic about US equities. That’s the key takeaway from Bank of America’s latest monthly fund manager survey.
Certainly, there is no evidence of euphoria. Cash levels have fallen but remain in line with historical averages, while BofA’s Bull and Bear indicator stands at 5.2 – nowhere near the 8.0 level that triggers a sell signal.
Still, contrarians might detect some signs of complacency. Clients are “convinced” inflation is transitory and expect the federal reserve to remain “well behind the curve”, notes BofA. Equity allocations are at their highest level since June and 1.2 standard deviations above their long-term average.
Notably, allocations to US equities have spiked higher. Current allocations are 1.7 standard deviations above historical norms and are at their highest level in more than eight years. Furthermore, fund managers want to increase their exposure to US stocks over the next year.
Regions tend to under perform when allocations get particularly lopsided, so contrarian investors may be concerned about overheated US sentiment.
In contrast, fund managers continue to underweight emerging markets, although that may not remain the case for long – asked which assets will perform best in 2022, fund managers chose emerging market stocks.
