Investors are heading towards the end of the year in a “risk-on” mood, having reduced cash allocations and lifted their overweight position on U.S. stocks to the highest since August 2013, BofA Securities’ monthly fund manager survey showed.
Inflation remains the biggest tail risk for markets but a majority of 61% believes it is transitory and expect the Federal Reserve to remain “well behind the curve” in setting its monetary policy, the U.S. investment bank added on Tuesday.
The widely watched survey was conducted between the 5th to 11th November among investors with a total of $1.2 trillion of assets under management.
“Investors are not expecting the Fed to tighten aggressively (i.e. buy-in for Powell narrative on transitory inflation and modest tapering),” said Bofa adding that investors now see on average 1.5 Fed rate hikes next year, up from 1.1 last month.
Cash allocations fell to 4.4% in November from 4.7% in the previous survey last month, as investors increased their overall equity overweight and trimmed their overweight in commodities while remaining deeply underweight on bonds.
As fears about price pressures abated, investors rotated out of inflation assets, to discretionary and tech from energy, industrial and banks, while reducing value exposure to the benefit of growth.
The survey highlighted easing concerns over a macro slowdown with a net of 3% now saying the global economy will improve and only 6 out of 100 expecting a recession in the next 12 months.
It also said “Long Tech Stocks” was the most crowded trade at 37% followed by Bitcoin at 21% which a 59% majority thinks is in a bubble.