Global fund managers raise cash allocation to 21-year high: BofA

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Fund managers across the world are gravitating to cash amid rising inflation, central bank tightening and geopolitical tensions. Bank of America’s September Global Fund Manager Survey (FMS) characterises this mood as “super-bearish”, with allocation to cash inching up to 6.1% in August, the highest in 21 years and well above the long-term average of 4.8%.

According to the survey, the short-term “pain trade” is up once again for risk assets, the global growth expectations are near all-time lows and the maximum bearish sentiment prevails.

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In India, three of the top 20 fund houses by equity assets – SBI MF, Axis MF and PPFAS – were holding more than 10% in cash at the end of August, according to Motilal Oswal Financial Services. Another four – ICICI Prudential MF, Franklin Templeton MF, IDFC MF and PGIM India – had cash levels of between 5% and 10%.

According to FMS survey, investors cut their net underweight in stocks further to -52% in September while pushing longs to defensives to 53%, the highest since February 2009.

The Fed will end hiking rates in Q2 of 2023, according to 36% of FMS investors. FMS investors have repriced terminal Fed funds rate much higher in the past month, with 38% now seeing the Fed hiking rates till 4-4.25%, versus 3.5-3.75% in August 2022.

A net 61% of FMS investors see the US dollar as the most overvalued, up 2 ppt month-on-month to a record high. Net 72% expects weaker economy next year and net 79% expects lower inflation in the next 12 months.

The share of FMS investors saying recession is likely increased further in September to 68%, the highest since May 2020. Since its post-pandemic peak of 80% hit in June 2022, the share of investors believing the economy is in its late-cycle phase has dropped continuously to 67% in September. Historically, a drop of this magnitude and length has coincided with a recession.

The ongoing energy crisis in Europe will likely push the domestic economy into a recession, according to almost 70% of FMS investors.

Close to 70% of FMS investors expect China GDP growth in 2022 to slow to 4% or less versus 57% one month ago, much below the average real GDP growth of 8.8% observed since 1990.

Two hundred forty panellists with $695-billion AUM participated in the August survey. Two hundred twelve participants with $616-billion AUM responded to the Global FMS questions and 121 participants with $265-billion AUM responded to the regional FMS questions.