The biggest fear among fund managers is rising rates and inflation.
Fund managers are more bullish than ever, according to the latest Bank of America Merrill Lynch’s Global Fund Manager Survey. (Tweet this)
According to the April survey, half of managers polled expect the economy to stage a so-called v-shaped recovery, meaning a sharp revival in GDP figures following the Covid-induced fall in output last year. In contrast, just 10% of fund managers expected this sort of rebound in Mary 2020. Fund managers were also optimistic about profitability, with a net 85% expecting global profits to improve over the next 12 months.
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This bullishness could also be seen in the allocation decisions of fund managers. The survey found that fund managers were overweight banks by the most amount since March 2018. Banks are seen as cyclical stocks, meaning that they perform better when the outlook for the global economy is positive. Fund managers were also overweight other cyclical stocks such as commodities and materials.
In terms of risks, fund managers no longer rank the Covid-19 pandemic as their biggest concern. The largest amount of fund managers cited a so-called taper tantrum as the biggest risk. This refers to the prospect of interest rates and bond yields rising causing a sell-off in equity markets.
Related to this risk is inflation, which a large number of fund managers also cited as their primary concern. Indeed, a net 93% of fund managers said they expected higher global inflation over the coming year. This is the largest amount since 2004.
An increased number of fund managers cited higher taxes as the biggest risk. Whereas in March 2020 just 5% of fund managers cited this risk, 15% did in April. Over the past couple of weeks, the Biden administration in the US has suggested it hopes to raise corporate earnings taxes.
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It is also interesting to note that only 7% of fund managers surveyed said they believe US stocks are in a ‘bubble’. However, most managers said they thought the US market was in the late stages of a bull market. A quarter said they believed the US was in the early stage of a bull market. Just over a third of fund managers said they expect the S&P 500 to outperform over the next year.
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