Fund managers are seeking refuge from an uncertain outlook by buying Big Tech and bonds.
Professional investors are moving money out of commodities and into technology shares, as growth stocks rebound this year and hype around artificial intelligence breakthroughs attracts investors.
The latest Bank of America fund manager survey, conducted at the beginning of May on investment firms with $735 billion (£586 billion) in assets between them, found that allocations to technology shares reached their highest level since December 2021.
Owning Big Tech stocks was the most crowded trade for the second month in a row, and allocation to shares generally rose to a five-month high as fears about a recession caused by higher interest rates resided.
Bank of America said: “In a ‘flight to safety’, allocation to tech has risen by 22 percentage points since March 2023, the highest two-month increase since March 2009.”
America’s largest tech stocks are performing excellently this year, following a tough 2022 as interest rates rose suddenly.
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Breakthroughs in artificial intelligence are boosting shares, with Microsoft partnering with OpenAI and its ChatGPT software, while Google announced new artificial intelligence tools for its range of software and search tools.
Cash levels among professional investors rose to 5.6% in May from 5.5% in April. Cash allocation has remained above the 5% tactical ‘buy’ signal according to Bank of America since November 2021.
Meanwhile, allocation to bonds hit a 14-year high and commodities hit a three-year low, as investors positioned themselves for a coming recession.
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High-quality bonds are defensive in a recession, as their fixed coupon payments will continue to be paid, but commodity prices are likely to fall if economies slow down.
Other popular trades in May include buying European shares, US Treasury bonds, and buying Chinese shares.
Bank of America said contrarian investors could look to buy real estate investment trusts (REITs), bank shares and value stocks, while betting that bonds, tech and growth shares will fall in value.
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