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Caution Is Fund Managers’ Byword in July: BofA Survey

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Investor sentiment remained cautious in July, according to the latest global fund manager survey, released Tuesday by Bank of America Global Research.

In June, BofA reported that investors had moved past “peak pessimism,” but were “nowhere near dangerously bullish.”

The new report found that investors had positioned themselves for possible bad news on three fronts: the coronavirus pandemic, the macro situation and the November U.S. presidential election.

Cash levels rose to 4.9% from 4.7% in June, well down from April and May levels, but still on the high side; the 10-year average is 4.7%.

Fund managers’ cash allocation fell one percentage point to net 32% overweight, again elevated relative to history, BofA said.

The survey was conducted from July 2 to July 9 with participation by 210 fund managers with $607 billion in assets under management.

Seventy-two percent of investors said they expected stronger global growth over the next 12 months, up 11 points from June and the highest level since January 2014. However, their conviction in the recovery’s strength and duration was low.

Only 14% said they expected a V-shaped recovery. Forty-four percent said, rather, that it would take the shape of a U, and 30% anticipated a W-shaped one.

Fifty-four percent of survey respondents said the U.S. Federal Reserve would not introduce yield curve control in September.

Seventy-four percent of fund managers reported that the most crowded trade in July was long U.S. tech, up two points from June and the highest reading in the survey’s history, according to BofA.

The most-crowded trade list also included long gold, cited by 11% of investors; long cash, 6%; and long corporate bonds, 6%.

At the same time, 52% of fund managers said a second wave of COVID-19 was the biggest tail risk, followed by 15% who said it was the November election, 11% who worried about a credit event and 8% who cited populist policies to end inequality.

Investors’ global corporate profit expectations climbed 17 points from June, with net 36% now expecting improvement over the next 12 months. BofA said this was the biggest three-month swing in the index since June 2001.

Net 60% of fund managers said companies were overleveraged, up two points from last month and near all-time highs.

And net 62% of investors said they wanted corporates to spend cash on improving their balance sheets, down three points, while net 26% advocated capital spending and 9% wanted cash returned to shareholders.

Allocation to equities fell one point month over month to net 5% overweight. U.S. equities remained the most-favored region by global investors, even as the allocation fell from net 22% to net 21% overweight.

Allocation to eurozone equities shot up nine points to net 16% overweight, the biggest increase in net weighting of any region in July. BofA said the EU had become more attractive to investors because of its fiscal policy.

Looking to the post-pandemic world, 67% of global investors said the biggest structural shift would be supply chain reshoring, with 54% expecting the U.S. to benefit most.

Other shifts cited: protectionism, 46%, and Modern Monetary Theory (extreme debt financing), 45%.