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Vaccine Hopes Spark Fund Managers' Optimism: BofA

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Revisit risk tolerance and portfolio diversification. (Photo: Shutterstock)

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.

Related: Pandemic Weighs on 2021 Growth Forecasts: Natixis

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.

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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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