Funds selectors are their most bullish in two and a half years as a majority now anticipate no recession and rate cuts in H2, according to the Bank of America’s (BofA) latest fund manager survey.
The survey, which interviewed 209 respondents with $562bn assets under management (AUM), found cash levels fell to 4% of portfolios, the lowest level in three years.
Meanwhile, equity allocations were at their highest since January 2022 as roughly 80% of investors expect multiple rate cuts over the next 12 months while the US avoids a recession.
According to the survey, almost a third (31%) of investors anticipate a ‘no landing’ scenario, with a ‘soft landing’ still consensus at 56%.
It comes despite growing pessimism around the US economy, with the first drop in GDP and earnings per share (EPS) expectations since September 2023.
More than half of investors believe current US government spending is ‘too stimulative’, suggesting the peak tailwind has passed.
Growing evidence of stagflation – inflation rising while growth declines – also has investors concerned, with higher inflation named as the number one tail risk to portfolios. As a result, 47% of investors expect bond yields to fall.
Other big risks include geopolitics (18%) and a ‘hard landing’ (15%).
Highlighting this, investors increased their allocation to commodities from 11% to 13% over the past month, the largest increase since August 2020 and its highest weighting since April last year.
Demand for commodity ETFs has been weak so far this year, recording $111m outflows in Q1, versus $19bn inflows for equity and fixed income ETFs, but several headwinds are forcing investors to reassess.
