Global fund managers have continued to hold a positive outlook for US equities while trimming stakes in Eurozone, Japan, UK, and emerging market stocks, a Bank of America survey showed.
Global fund managers have continued to hold a positive outlook for US equities while trimming stakes in Eurozone, Japan, UK, and emerging market stocks, a Bank of America survey showed. Allocation to US equities remains steady at a net 11% overweight in August, while allocation to eurozone stocks is down 9 percentage points on monthly basis. Allocation to emerging markets is down 11 percentage points to the lowest since May 2020. BofA’s survey showed that fund managers are now turning defensive in allocations, investing more in the healthcare and insurance sectors, while increasing cash positions.
The Dow Jones Industrial Average has soared 15.5% so far this year. The index has trimmed gains recently, but it still remains positive over the last one month. “FMS (fund managers) conviction in US equities continued to rise while optimism for Eurozone and EM equities have continued to wane,” BofA said in the report. For fund managers across the globe, ‘long US tech stocks’ still remains the most crowded trade with nearly 40% backing the same. Meanwhile, 11% of the investors have backed the ‘short china stocks’ trade this month.
Going defensive
Among sectoral allocations, fund managers have increased positions in healthcare, insurance, utilities, and cash as compared to the previous months, the survey showed. “Investors have gotten slightly more defensive with an increase in healthcare, insurance, utilities and cash. They have also modestly trimmed their inflation exposure to materials, commodities, EM, and energy,” BofA added. Fund managers still remain overweight equities, however, the allocation is down to 54% against 62% in April. Cash position of fund managers is the highest now, since October 2020.
With global fund managers trimming stakes in emerging markets, FIIs have been pulling money away from Indian markets too. So far this week, FIIs have pulled out Rs 2,026 crore from domestic stocks. In the month of July, foreign investors were net sellers selling nearly Rs 19,847 crore of securities.
Inflation a big risk; cut growth projections
Going ahead, the BofA survey showed that fund managers see inflation as the biggest tail risk for global stock markets. Since March this year, institutional investors have been cautioning investors about inflation and a bond tantrum. 84% of the survey respondents believe the US Fed will signal tapering before the end of this year. With this fund managers have also cut global growth projections, as now only 27% believe the global economy will improve, the lowest since April last year. Earlier in March this year 91% believed the economy would improve.
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