Global fund managers raised their equity allocation by the most on record in May, according to Bank of America. In the bank’s monthly poll, of the 170 global managers who responded, with over $460 billion in total assets, a net 50% are overweight stocks against 13% in April.
This is the highest reading since the survey started in 2001, and comes as US major indices are nearing all-time highs. Meanwhile, average cash levels are down to 3.9% of assets confirming managers are ‘all in’ on the rally.
Earnings enthusiasm
After a strong Q1 earnings season, where EPS growth received a boost from Mag 7 companies, asset managers are bullish. This is despite the prospect of interest rate cuts receding due to a rekindling of inflation on high energy prices.
The survey says pessimism on global growth has ‘melted’, with only 4% of managers predicting a ‘hard landing’ for the economy. In contrast, 39% see ‘no landing’ and a record number of managers expect double-digit EPS growth to continue.
In a further demonstration of bullishness, two thirds of managers expect the Strait of Hormuz ‘bottleneck’ to end soon. The biggest risk investors see is the US Federal Reserve acting too slowly to counteract rising inflation.
Biggest ‘crowded trade’ is Tech
Managers continue to back the AI trade with 73% overweight semiconductors and the biggest overweight to technology overall since February 2024. They are also the most overweight cyclical stocks versus defensive stocks since January 2018.
The biggest consensus underweight positions are in Consumer stocks, Eurozone stocks and bonds in general. Also, a net 46% of managers believe oil prices are inflated, the highest proportion since August 2008.
Retail investors should take this survey with a large pinch of salt, as do the authors. Human nature being what it is, enthusiasm is always greatest when markets are soaring while pessimism rules when markets are falling.
There is an extra factor at work here, though – career risk. No manager gets fired for being wrong when everyone else is wrong, only when they are wrong in isolation.
As an investor, there is comfort in running with the herd, even if secretly you suspect it is headed off the edge of a cliff. We all tell ourselves we’re too smart to get caught, and we’ll abandon the trade before that happens.
At the end of the day it’s horses for courses. If your risk appetite and your risk antennae are telling you to pile into the market, that’s your choice. Similarly, if things feel a little frothy and you want to keep your powder dry, it’s your call.
We don’t try to time the market, but it’s good to know when bullish sentiment takes over because that’s when bubbles develop. The old market saw ‘be greedy when outhers are fearful, and fearful when others are greedy’ still applies today. Even the authors admit the results are a stone’s throw from marking a Sell signal.
