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COVID-19 No Longer Investors’ Top Tail Risk: BofA

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What You Need to Know

  • Inflation now takes the top spot, according to the monthly survey of fund managers.
  • Fund managers are “unambiguously bullish,” BofA found.
  • Tech allocations plunged in February.

In the 12 months since the novel coronavirus was declared a global pandemic, investors have cited COVID-19 as the No. 1 tail risk. Now, the pandemic has receded as their biggest concern, according to the latest global fund manager survey, released Tuesday by Bank of America Global Research.

Thirty-seven percent of investors surveyed consider inflation the top tail risk, followed by 35% who say it is taper tantrums, up from 24% and 25% in last month’s poll. The COVID-19 vaccine rollout trails at just 13%, down from 26% in February.

The survey was conducted March 5 to March 11 among 220 investors with $630 billion in assets under management.

Fund managers are “unambiguously bullish,” BofA found, with 48% expecting a V-shaped economic recovery, up from 10% last May. A record net 91% of investors expect a strong economy.

Net 89% look forward to improved global profits over the next 12 months, up five percentage points from February and the highest level ever, BofA said.

Fifty-two percent of fund managers say they want chief executives to increase capital expenditures, versus 30% who want to see improved balance sheets.

Net 93% of fund managers expect higher inflation over the next year, a month-over-month increase of seven points. 

BofA said the March findings indicate that a record 53% of investors expect higher growth-higher inflation over the next 12 months, whereas 29% expect higher growth-lower inflation. The report noted that this has happened only twice before, in March 2011 and December 2016.

Allocations

Fund managers’ cash levels increased two points in March to 4%. 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 stayed where it was last month, at 1%.

Allocation to equities held steady at 61% overweight, while bond allocations fell four points to net 66% underweight, their lowest point in two years, according to BofA.

In March, investors rotated out of technology, utilities and staples, and into industrials, banks and discretionary stocks. Allocation to banks increased by 11 points to net 24% overweight, the highest level since March 2018.

Allocation to technology plunged 24 points from February to just net 8% overweight. The report said this was largest month-over-month change since August 2006, and lowest fund manager allocation to technology since January 2009.

Long tech held on to the top spot as the most crowded trade in March, named by 34% of investors. Twenty-four percent said the most crowded trade was long Bitcoin, and 15% said long environmental, social and governance focused investments.

(Photo: Shutterstock)

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