The number of fund managers reporting to be overweight cash has declined to its lowest level since 2015.
Fund managers are turning increasingly bullish, following the announcement of two successful Covid-19 vaccines, according to the latest Bank of America Merrill Lynch Global Fund Manager Survey.
The survey found that 91% of fund managers expect the global economy to be stronger in the next 12 months, the highest percentage since March 2002. The number of managers expecting an increase in global profits was also the highest since March 2002, at more than 80%.
Meanwhile, 66% of fund managers surveyed said they currently considered the economy to be at the start of a new cycle, the highest percentage figure since 2010, when the world economy started to pick up following the financial crisis.
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Indicative of this newly bullish stance, the average amount of cash held by fund managers fell from 4.4% to 4.1%. The number of fund managers reporting to be overweight cash declined to its lowest level since 2015.
Pre-Covid, that figure stood at 4.2%. At the same time, 46% of investors surveyed said they were overweight equities, the highest number since the start of 2018.
In addition, an increasing number of fund managers expect a market rotation to play out. Over the past decade, growth and large-cap stocks have outpaced value and smaller companies. During the pandemic this outperformance became even more extreme.
However, since the vaccine announcement, value and smaller companies have started to pick up, on hopes that economic conditions will soon start to improve. Many fund managers now increasingly believe that value and smaller companies will continue to outperform. A total of 24% of those surveyed said they expected value stocks to outperform, the highest since February 2019. Meanwhile, 21% said they expected smaller companies to outperform.
However, investors are still overweight healthcare and technology stocks. The survey found that the most favoured sector was healthcare, closely followed by tech. Meanwhile, most fund managers are still underweight energy, albeit to a lesser degree than they have been.
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In terms of regions, fund managers are continuing to back the US. However, investors also appear to be more confident about emerging markets. Of those surveyed, 36% said they were overweight emerging-market stocks, the highest level since February 2020, when the pandemic started.
Fund managers are still negative on the prospects for the UK, however. In total, 33% of fund managers reported being underweight UK equites, making it the least-favoured major region among those surveyed.
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