Hopes for a coronavirus vaccine induced a strong “buy the reopening trade” sentiment among global fund managers surveyed in December by Bank of America Global Research.
Asked by pollsters when the vaccine would start to have a positive effect on the economy, 42% of investors said the second quarter of 2021, a more optimistic 28% said the first quarter and 19% said the third quarter.
The survey was conducted Dec. 4 to Dec. 10 among 217 investors with $576 billion in assets under management.
Investors’ cash levels fell to 4% from 4.1% in November, putting them near the fund manager cash rule’s sell signal. The cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities, and when the cash balance falls below 3.5%, a contrarian sell signal is generated.
The December survey found that net 1% of fund managers were underweight cash for the first time since May 2013, which BofA said was indicative of an early-stage recovery similar to those in October 2009 and January 2002.
Eighty-nine percent of investors said they expect global growth over the next 12 months, down two percentage points from November, and 56% expect the global economy to get a lot stronger, up 12 points from last month.
Net 79% of fund managers expected higher global inflation in the next 12 months, up four points from November and the highest level since July 2018.
Asked what corporations should do with cash, 44% of respondents said they should improve their balance sheets, and 42% said they should increase their capital expenditures now that recession fears are abating.
Fund managers’ allocation to equities rose five points to net 51% overweight. Their allocation to commodities shot up 11 points to net 18% overweight, the highest level since April 2011.
Bond allocations fell six points from November to net 56% underweight, the lowest level since March 2018.
Fifty-two percent of survey participants said long tech was the most crowded trade in November, followed by 17% who said short U.S. dollar and 15% who said long Bitcoin.
As to what they considered the biggest tail risk, 30% said a second wave of the coronavirus, down from 41% who said this in November. Twenty-four percent cited inflation, and 18% fiscal policy drag.
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