Kyle Caldwell runs through the key asset allocation calls being made at the moment.
There are two areas professional investors have plenty of conviction in at the moment – Big Tech and investment grade bonds.
This is according to the latest monthly Bank of America fund manager survey. In total, 285 panellists overseeing $764 billion (£608 million) in assets were polled.
The closely watched survey reveals that owning the technology giants was the most crowded trade, which has been the case for the past three months. While the allocation to tech was flat month on month, at a 16% overweight, it remains the highest allocation since December 2021.
The big technology giants at the forefront of artificial intelligence (AI) innovation have seen their share prices soar year-to-date. This has led to seven US stocks, Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), NVIDIA (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA) and Meta (NASDAQ:META), accounting for most of the S&P 500’s gains so far this year.
Overall, the pros are bullish on the prospects for AI adoption, with 40% expecting higher profits for firms that successfully adopt the technology.
- Listen to our podcast: Why you may already be profiting from AI
- Be cautious of ‘AI tech hype’ as seven US stocks dominate returns
- The funds and trusts profiting from Nvidia’s unstoppable rise
The other area the pros are backing is investment grade bonds. This is the safest class of corporate credit, which experts argue offers an enticing mix of high yields and defensive properties, as covered in our latest Bond Watch article.
The June global fund manager survey reveals that the pros are the most overweight investment grade bonds versus higher yield bonds in eight years.
One factor behind the bullishness on bonds is the hope that interest rate rises will have the desired effect of cooling red-hot inflation. The survey says that there’s a strong conviction among fund managers that inflation will be lower a year from now, with only 2% expecting higher inflation.
Some pros are preparing their portfolios for a recession, which most think will take place in the final quarter of 2023, or the first three months of 2024. High-quality bonds are defensive in a recession, as their fixed coupon payments will continue to be paid.
Another area experiencing increased attention is Japan. The region is now a small overweight, of 4%, among professional investors. This comes on the back of the Nikkei, Japan’s main stock market, recently reaching a 33-year high.
Europe is also a small overweight, although this had fallen by 11 percentage points to 3% over the past month. As we recently explained, the region has benefited from the re-opening of China, which has boosted sales for Europe’s luxury goods companies. Such companies have also benefited from the resilient spending power of wealthy consumers amid the cost-of-living crisis.
- Listen to our podcast: the most-popular funds and investment trusts
- Why this unloved fund sector is topping the performance charts
China itself remains out of favour among professionals, who are ‘shorting’ the region. It is the second most crowded trade.
For the emerging market region as a whole, investors are overweight, at 13%, but this has declined by 28 percentage points since February.
Both the UK and US markets are underweight positions, at 17% and 25% respectively.
Commodities have lost some of their lustre, with allocation to this asset class hitting a three-year low at a 3% underweight.
Cash weightings stood at 5.1% in June, down from 5.6% last month. Cash allocation has remained above the 5% tactical ‘buy’ signal, according to Bank of America since November 2021.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
Peter Spiller: ‘embarrassing’ discount will close soon and reward long-term investors