Stocktake: Fund managers turn cautious on stocks

US stocks are back near all-time highs, but fund managers are far from euphoric, according to Bank of America’s (BofA) latest monthly fund manager survey. The survey is the least bullish since October 2020.

Global growth expectations have plummeted over the last month, falling to their lowest level since March 2020. Global profit expectations are “down huge” since last month, notes BofA, and are at their lowest level since May 2020. Similarly, corporate profit margin expectations have fallen a “massive” amount since September.

Importantly, cash levels have spiked from 4.3 per cent to a 12-month high of 4.7 per cent, while the number of fund managers taking below-average levels of risk is at levels unseen since October 2020.

Exposure

Overall, equity allocations are essentially unchanged over the last month, although hedge fund exposure to stocks has “dropped drastically”.

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Contrarians may be especially tempted by unloved emerging markets. Ongoing China concerns mean investors are very underweight emerging markets relative to historical norms and want to further cut exposure over the next 12 months. Consequently, emerging market sentiment is now in what BofA terms its "max despair" quadrant.

Overall, stocks may be marching higher, but there's no hint of excessively bullish sentiment. "From a contrarian point of view," says LPL Research's Ryan Detrick, "you have to like seeing that".