Fund managers ditch shares and dash for cash

The closely watched global fund manager survey reveals plenty of caution, with cash levels rising to a two-decade high.

Professional investors have turned even more bearish on the global economy, with optimism now at an all-time low, according to the latest monthly Bank of America fund manager survey.

In response, the pros have upped their exposure to cash to the highest level in two decades – since 9/11. Cash levels have increased from 5.5% to 6.1%.

The pros have also been selling shares, moving from being “overweight” to “underweight”. Bank of America points out that those surveyed, who manage $986 billion (£790 million), have not held as little in shares since May 2020, which was during the early stages of the Covid-19 pandemic.  

As part of the move to reduce exposure to shares, tech companies have been sold. The pros now hold the least in this sector since August 2006. Also out of favour are Europe and emerging markets, while defensive sectors, utilities, consumer staples and healthcare, are in favour.

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Oil and commodities is the most-crowded trade. Commodities have been on a tear for the past two years, with some predicting the early stages of a new ‘supercycle’ for the asset class, driven by the global green revolution, as major economies strive to decarbonise. Russia’s invasion of Ukraine has pushed prices up further.

Central bankers being “hawkish” was voted the biggest tail risk, followed by the prospect of a recession. Other major concerns are inflation and the ongoing Russia-Ukraine war.

Stagflation has become a greater worry, with expectations of this playing out rising from 66% to 77%, which is the highest level since August 2008.

Bank of America notes that the May survey is “extremely bearish”, but investors are not in “full capitulation”, due to continuing to expect interest rate hikes not cuts.

A silver lining is that expectations for higher bond yields (and in turn bond prices falling) is declining, with 34% of investors expecting bond yields to rise, down from 53% in April. This is the lowest percentage since March 2020.

Over the past couple of months, in response to high inflation and increases in interest rates, bond prices have been falling and yields have been rising. For example, UK 10-year government bonds had a yield of 0.86% at the start of 2022 and that yield has risen sharply, and now stands at 1.87%.