Bank of America’s monthly survey shows sentiment rebounded in May as global fund managers increased risk exposure and sharply reduced cash holdings.
After turning bearish in March following months of “uber-bullish” sentiment, Bank of America (BofA) found investor sentiment has flipped again this month, with an “in it to win it” tone as investors positioned for June profit-taking.
Asset allocation was firmly risk-on, with a record monthly jump in equities from a net 13 per cent overweight to 50 per cent, the highest since January 2022.
Investors also cut cash levels from 4.3 per cent to 3.9 per cent on the improved outlook and expectations of US Federal Reserve (Fed) rate cuts. At levels below 4 per cent, this signals a “sell signal” of extreme bullishness, suggesting markets may be vulnerable to near-term profit-taking.
The shift in allocations lifted overall sentiment – which is measured by cash levels, equity allocations and global growth expectations – to its highest since February, jumping from 3.7 to 6.6.
Carried out between 8 and 14 May, the firm’s monthly Global Fund Manager Survey gathered responses from 200 participants managing US$517 billion ($727 billion) in assets.
The bullish positioning among respondents comes amid opposing market forces, with stocks near record highs after a strong US earnings season and continued optimism around AI spending, while geopolitical risk persists from the Iran war, keeping Brent crude above US$100 a barrel.
While sentiment improved and global fund managers lifted their growth outlook from -36 per cent last month, BofA investment strategist Michael Hartnett and his team noted it remained negative at -14 per cent, as stock prices “continue to outpace investor macro expectations”.
Nevertheless, investors were still less pessimistic for the overall economy with just 4 per cent predicting a “hard landing”.
Since the survey was conducted, the Strait of Hormuz remains closed and key questions still unanswered, with rising oil prices stoking inflation concerns and lifting expectations of tighter monetary policy than at the time.
A global bond sell-off has also pushed yields higher across the world as inflation concerns have intensified.
The June profit-taking window outlined in BofA’s report aligns with similar timelines flagged by other fund managers, including ClearBridge, around changes to disruption to the Strait of Hormuz. On the other hand, RBC Capital Markets published a note last week stating it was sceptical of this timeline.
When asked when they expected the Strait of Hormuz to reopen, the largest share of BofA respondents (44 per cent) pointed to June, followed by 22 per cent expecting Q3, while a further 10 per cent said they anticipated it reopening this month.
On 30-year Treasury yields, which are now above 5 per cent, 62 per cent of respondents said they are targeting 6 per cent, while 20 per cent are targeting 4 per cent. Investors were the most underweight to bonds overall since June 2022.
Asked about the biggest tail risk affecting markets, 40 per cent of global fund managers cited a second wave of inflation.
Meanwhile, for 10 consecutive months, private credit has been cited as the most likely source of a credit event. It was followed by AI hyperscalers, with 73 per cent of respondents also naming “long global semiconductors” as the most crowded trade this month.
On sector allocations, BofA found investors increased exposure to tech, banks and industrials, while they reduced healthcare, staples and materials. Respondents are now the most overweight to tech stocks since February 2024.
On the other hand, out of favour areas included European equities and consumer stocks.
