Fund managers were the most overweight US stocks this month they have been in eight years, according to the last fund manager survey from the Bank of America.
The survey showed that investors were ending 2021 in “risk on” mode, with the biggest overweight of US stocks since August 2013. Allocation to US equities rose 13 percentage points month-on-month to 29% overweight.
The survey also found that fund managers were increasingly bullish on European equities, with 71% of participants expecting the rally to continue until at least next year, up from 65% last month. In addition, 44% see reducing equity exposure too early as the biggest risk to their portfolio, up from 36% last month, although 30% of investors think they might not have enough defensive hedges, up from 22%.
Bank of America said the net proportion of investors seeing European equities as overvalued was the lowest since March 2019, even as a small minority worries about asset bubbles.
The bank said global growth expectations have improved over the past month, with 3% of investors expecting global growth to accelerate over the next year, compared to -6% last month. In Europe, 35% of respondents believe the domestic economy can strengthen, up from 24% last month.
Meanwhile, 62% of participants reckoned the macro cycle will not peak until next year, up from 52% last month, while 26% think it has already peaked.
The survey also found that concerns about monetary tightening are growing, with 33% of respondents saying that inflation is the biggest tail risk for markets. Still, this was down from 48% last month and 14% now expect global inflation to decline over the coming year, for the first time since the start of the recovery.
Central bank tightening was seen as the second biggest tail risk, at 22%, up from zero last month, with more than 80% of respondents expecting short-term rates to rise over the coming year.
