Fund managers overseeing $526 billion are the most bullish they’ve been this year following the U.S. election outcome and progress on a vaccine, prompting a call from Bank of America Corp. strategists that it’s time to start selling risk assets.
The monthly survey, conducted Nov. 6 through Nov. 12 saw investor optimism about stocks skyrocket, with allocation jumping to the highest level since January 2018. Cash holdings plunged to the lowest level since April 2015, while economic growth expectations surged to a 20-year high. Investors snapped up more volatile assets, such as small-caps, value, banks and emerging-market stocks, while shifting away from bonds and staples.
BofA’s poll confirms a jubilant mood in the market since Joe Biden won the U.S. presidential race and after promising results for a Covid-19 vaccine developed by Pfizer Inc. and BioNTech SE fueled appetite for equities around the world. But with the S&P 500 hitting a record high, fund managers face a moment of reckoning on whether it’s worth taking profit or staying invested for potentially even more returns.
“Reopening rotation can continue in the fourth quarter but we say ‘sell the vaccine’ in coming weeks or months as we think we’re close to ‘full bull,’” said BofA strategists led by Michael Hartnett in a Tuesday note. With investor optimism on stocks increasing sharply, a “topping process gets underway,” they said.
Allocations to equities in November rose to net 46% overweight, close to “extreme bullish,” according to BofA. Hedge funds also maintained a high exposure to stocks, at 41%.
Among surveyed investors, 91% expect the economy to be stronger in the next 12 months, and 66% believe that global growth is in an early-cycle phase as opposed to a recession. Fund managers also haven’t been this optimistic in their global profit expectations since 2002.
While Covid-19’s second wave remains the biggest tail risk, fund managers surveyed by BofA now expect a credible virus vaccine to be announced by mid-January 2021, compared to last month’s bets on mid-February. A total of 190 money managers took part in the global BofA survey.
Other November survey highlights include:
- Record net 73% of investors expect a steeper yield curve
- Among world’s most crowded trades, long tech stocks still tops the list, followed by short banks and long corporate bonds
- Net 24% of surveyed investors expect value stocks will outperform growth stocks, highest since February 2019
- Among assets that investors expect to outperform next year, emerging markets, S&P 500 and oil top the list
- Net 6% of fund managers say they’re taking higher than normal risk levels, highest level since January 2018
- Allocation to U.S. stocks increased 4 percentage points to net 23% overweight, while allocation to euro-area stocks dropped 8 percentage points to net 18% overweight
- Exposure to EM is rising, with net 36% of investors overweight EM stocks, making it the survey’s most-preferred region, while largest proportion on record said EM currencies are undervalued
- U.K. stocks remain the survey’s biggest underweight
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