Fund managers stay bullish despite tariff and AI fears

Allocation to global equities has risen for a fourth consecutive month but is not yet at an extreme level, a bullish survey of professional investors has said.

The latest Bank of America research carried out between 31 July and last Thursday found that cash balances remain low at 3.9% of assets under management.

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Long positions on the Magnificent Seven are back as the most crowded trade, while respondents are divided over whether artifical intelligence (AI) stocks are in bubble territory. A majority of 52% said this wasn’t the case amid increased conviction that AI is already increasing productivity.

Those believing that AI stocks are in a bubble rose to 41% from 37% in July’s survey.

Overall, BofA’s fund manager report is the most bullish since February after equity allocation rose to a net 14% Overweight position from 4% in July’s survey.

However, this remains well below the 24-year average of net 25% Overweight and the post-US election high of 49% last December.

The figures are in stark contrast to April’s report, when gold replaced the Magnificent Seven as the most crowded trade and US stock allocations saw their largest ever two-month drop.

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Cash levels were 4.8% of portfolios in April but have since dropped back to 3.9% as investors have taken a more relaxed stance on the impact of President Donald Trump’s tariffs.

Expectations for economic growth remain tepid but only 5% of survey respondents are positioned for a hard landing.

Asked about the final tariff rate that the US would impose on rest-of-world imports, respondents now expect a weighted average of 15% compared with the 14% seen in July.

The number one tail risk for investors continues to be a trade war triggering a global recession, but at 29% this is down from 38% in July’s survey and 47% in June.

The view on the biggest tail risk is now more evenly spread, with the impact of higher inflation on the outlook for Federal Reserve interest rate cuts the next biggest at 27%. This is followed by disorderly bond yields at 20% and an AI equity bubble at 14%.

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The US is viewed as the region in which equities are the most overvalued, with the record net 91% of survey investors up from 87% in July. Emerging markets are seen as the most undervalued based on the highest level of responses since February 2024.

On regional equity allocation, survey investors are net 16% underweight US equities. However, this is the lowest level since February after an improvement from 23% in July.

They are 24% Overweight eurozone equities, but this is down from a net 41% in July and represents the lowest allocation since April. On UK equities, respondents are net 2% Overweight compared with a 3% Underweight position a month earlier.

In terms of sectors, investors increased their allocation to utilities, energy and banks and reduced allocation to healthcare and consumer discretionary.