Cash draws in fund managers in droves

Global fund managers piled into cash in December on Covid-19 risks and ahead of central bank policy meetings, setting off Bank of America’s equity-buying signal.

December’s investor cash allocation increased 14 percentage points from November to a net 36% overweight, the highest exposure since May 2020, according to BofA’s last fund manager survey of the year. Market participants slashed their equity positions to the lowest since October 2020, although investments in stocks remained above the historical average.

Hawkish central banks are seen as the biggest tail risk for the first time since May 2018, according to BofA’s survey, followed by inflation and Covid-19’s resurgence. A hasty shift by policy makers anxious to tame surging inflation is also seen as the biggest downside risk for global stocks in 2022, based on an informal Bloomberg News survey of fund managers.

Traders are bracing for the Federal Reserve’s policy decision due on Wednesday for clues on the timing of tapering stimulus and raising interest rates. The Fed is among 20 central banks meeting this week.

BofA strategists led by Michael Hartnett said surging cash levels triggered the broker’s contrarian buy signal. “Investors are very cautious but few outright bearish,” they wrote in a note.

While fund managers shifted to more defensive assets in December, they’re far from panicking, according to the survey. Global growth and profit optimism improved, with investors forecasting that rate increases will hit inflation and not economic recovery, while the majority of survey participants see the current spike in prices as transitory.

BofA’s survey took place December 3 to 9 and included 330 participants with $968bn in assets under management. 

Other highlights include:

• In absolute positioning, investors are “very long” stocks, particularly those in the European Union and US, as well as healthcare, banks and tech, while shunning bonds, defensives and emerging-market stocks
• Most crowded trades are long tech stocks, long bitcoin, long ESG, short US treasuries, short China stocks, short emerging markets foreign exchange.
• Compared to November, allocation to US stocks declined 11 percentage points to 18% overweight, while exposure to Eurozone equities dropped two percentage points to a net 31% overweight; allocation to UK stocks rose four percentage points to an 11% underweight
• Investors on average expect two Fed rate hikes in 2022, with nine out of 10 saying the Fed will tighten policy by the first half of 2023, and the average expectation now for July 2022
• Fifty-five percent of investors see inflation as transitory, and only six out of 100 expect a recession in the next 12 months

More stories like this are available on bloomberg.com

Bloomberg