Investor sentiment was less bullish in February than in January, according to the latest global fund manager survey from Bank of America Global Research.
In February, investors rotated into deflation winners — U.S. equities, technology, bonds and emerging markets equities — and away from inflation assets, such as cash, banks and energy.
“Investor sentiment is less bullish than last month and shows full capitulation into deflation assets,” chief investment strategist Michael Hartnett said in a statement. “We stay irrationally bullish.”
U.S. equity allocations shot up 16 percentage points to net 19% overweight, the highest level since September 2018, while allocation to global equities increased one point to net 33% overweight, a 20-month high.
BofA said the bullishness for U.S. equities in part reflected investors’ conviction that rates would stay within the current 1.4% to 2% range, which 58% of fund managers considered bullish for risk assets.
Still, emerging markets equities continued as fund managers’ most preferred region for the fourth consecutive month, rising three points to net 36% overweight.
Among sectors, fund managers in the February survey liked technology best, with allocations rising nine points to net 40% overweight, the highest level since October 2016.
Investors’ average cash balance fell to 4% from 4.2% in the January survey, the lowest level since March 2013, and well below the fund manager five-year average of 4.9%.
The fund manager cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5%, a contrarian sell signal is generated.
Allocation to cash fell six points to net 9% overweight, the lowest cash allocation since April 2015.
Net 54% of survey participants said the U.S. dollar was overvalued, the second highest level since 2002. BofA said this helped explain the rotation into U.S. equities out of European ones, which fell by eight points to net 19% overweight.