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Bears Are in Hibernation in February: BofA Survey

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The only reason to be bearish — well, there is no reason, say investors in Bank of America Global Research’s February fund manager survey.

The survey found respondents’ sentiment on global growth at an all-time high, with net 91% expecting a stronger economy, up a percentage point from January and the brightest outlook in survey history, BofA said.

Thirty-four percent of investors now expect a V-shaped recovery, whereas nine months ago only 10% did.

For the first time since January 2020, investors favor increased capital expenditures over improved balance sheets as 51% of those surveyed are urging chief executives to spend more. Inflation expectations peaked in January, the survey found, dropping six points in February to 86% of respondents who expect higher global CPI in the next 12 months.

The survey was conducted Feb. 5 to Feb. 11 among 225 investors with $645 billion in assets under management.

In February, investors’ cash levels dropped one point month over month to 3.8%, the lowest level since March 2013, just before the “Bernanke taper tantrum,” BofA said, referring to when Treasury yields surged as then-Federal Reserve Chairman Ben Bernanke announced the central bank would taper off its quantitative easing.

The fund manager 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.

Cash allocation rose two points to net 1% overweight, up two points from January, the month with the lowest level in nearly seven years, according to BofA.

Fund managers’ equity allocation increased by eight points to net 61% overweight in February, the second highest ever.

Allocation to U.S. equities increased five points to net 9% overweight; respondents have now been net overweight U.S. equities since March 2019.

Emerging markets continued as investors’ favorite region, even as their allocation dropped five points from January to net 57% overweight.

Fund managers moderated their sector positioning in February as they sought safety in growth, dialing back their big shift toward energy, materials and banks and restoring much of their overweight positions in technology and health care, 32% and 23%.

Twenty-eight percent of survey respondents cited the COVID-19 vaccine rollout as the biggest tail risk, followed by 25% who said it was a “tantrum” in the bond market, 24% who said higher-than-expected inflation and 13% who cited a bubble on Wall Street.

In February, long tech was the most crowded trade, according to 35% of investors. Twenty-seven percent said it was long Bitcoin, 13% short U.S. dollar and 13% long environmental, social and governance strategies.