Bank of America Corp's research report, involves surveying professional fund managers from around the world to find out their views on the economic situation, markets, and adherence to market conditions, growth forecasts, etc. The report also includes information on managers' investment strategies. January’s survey included 253 fund managers with a total value of USD 710 billion. What could we learn from the survey?
Recession increasingly less likely?
In November 2022, the proportion of people who expected a recession reached 77%, but this fell to 68% in the January survey. It is worth noting that previous peaks in recession fears were associated with significant changes in asset prices and almost perfectly marked the recent minimum for the two financial crises of 2009 and 2020.
Source: BofA Global Fund Manager Survey, Jan 2023
For the first time in two years, more managers are assuming that interest rates would still fall in 2023 over the next 12 months. Even so, as many as 83% of managers see an increase in global CPI inflation in 2023, down from the last reading (previously 90%). At what levels do respondents see interest rates peaking in the US? 44% indicated a level of 5-5.25%, while 20% expect a peak at 4.75-5%.
When asked about the top risks that could surprise the world, the most responses were that inflation would remain high (34% of votes), followed by a deep global recession (20%) and in third place that central banks would keep interest rates high for an extended period of time (19%).
What do fund managers invest in?
Surveyed managers appear to be shifting from a cash position to buying into the market. Their average cash level has fallen from 5.9% in December 2022 to 5.3% today. Investors are still holding large amounts of cash (4.7% on average since 1999). However, when this is combined with interest rates peaking and a recession, the allocation of these funds is lower than in previous cycles.
Source: BofA Global Fund Manager Survey, Bloomberg. MOVE Index
The biggest surprise may seem to be that investors are reducing their holdings of US equities by 40% on average. This is a decrease of 27 percentage points from last month. It seems that we can see a rotation of this capital to emerging market equities, whose average positions have increased by 26%. However, these are not companies from the euro area. We could therefore assume that the listing of the Vanguard Emerging Markets Stock Index Fund ETF (VWO) may generate the potential for further increases.
Source: Conotoxia MT5, VWO, Weekly
Relative to historical averages, bonds currently predominate the most in fund managers' investment portfolios, followed by utilities companies and a cash position in third place. However, relative to the average portfolio of the last 10 years, the share of equities, especially technology companies, is declining the most. Funds are also significantly reducing positions on the US dollar. In an era of high interest rates, bonds may appear to be a better and safer investment, with a satisfactory interest rate. Therefore, the potential investments that predominate in the managers' portfolios are long-term US bonds, to which the iShares 20 Plus Year Treasury Bond ETF (TLT) can give exposure.
Source: Conotoxia MT5, TLT, Weekly
Over the past month, US utilities (1.6% m/m), Eurozone (1.4% m/m) and emerging markets (1.3% m/m) stocks were the most commonly bought stocks. The sell-off hit the US currency hard. The dollar's position on average declined by almost 3% m/m. What we could see, for example, in the quotations of the EUR/USD pair.
Source: Contoxia MT5, EURUSD, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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