Sentiment rose to 4.1 from 2.9, based on cash levels, equity allocations and economic growth expectations. A record low, close to 0, was registered in the aftermath of the collapse of Silicon Valley Bank in March 2023.
Overall, cash levels have been cut to 4.2% from 4.8%, due to global growth expectations hitting two-year highs and investors taking advantage of the US tech rally.
The proportion of investors expecting a weaker economy in the next 12 months decreased to a net 25%, from January’s 40%, the survey found, with “big improvements” in global growth expectations from a low of net 79% expecting a weaker economy in July 2022.
Sell side equity sentiment reaches highest level since May 2022
A soft landing remains the most commonly expected outcome of the hiking cycle, with 65% of investors predicting the Fed will achieve this, while the probability of a hard landing has faded to just 11%. By contrast, 19% of respondents expect “no landing”, up from 7% in January.
Long ‘Magnificent Seven’ continued to be the most crowded trade (61%), followed by short China equities (25%) and long Japan equities (4%).
As a result, allocation to US equities rose 7 percentage points month-on-month to a net 21% overweight, the highest level since November 2021, BofA noted.
Similarly, global fund managers raised their allocation to technology by 10 ppt month-on-month to a net 36% overweight, one of the highest levels since August 2020.
Tech has become the top overweight sector, a position it has not held since July 2021, replacing healthcare, which held the top spot between March 2022 and January 2024.
At the same time, allocation to bonds also increased, up 3 ppt from January to a net 6% overweight, with investors overweight bonds for 11 of the last 12 months.
When asked about fiscal policy, a record 46% claimed it was “too stimulative”, up from 37% last month. Investors are also expecting lower short-term rates (90%) and lower inflation (77%), while only 4% and 7%, respectively, expect them to increase.
Active managers warn of ‘crowding risk’ in mega-cap tech in 2024
Global fund managers claimed higher inflation was the biggest tail risk in February (27%), closely followed by geopolitics (24%), a systemic credit event (16%) and an economic hard landing (15%).
As a systemic credit event features in the tail risks, respondents said the most likely source for such an event was US commercial real estate, taking over the top spot from US shadow banking, which topped the list in January.
China was the second most cited source of a credit event alongside US shadow banking.
Expectations on growth and value performance shifted in February, with a net 13% of investors citing growth as the outperformer over the next 12 months – the highest level since May 2020 – when the opposite was true in January with a net 2% expecting value to outperform.
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