Fund managers the most bullish they have been all year

Following the vaccine breakthroughs, nine in 10 fund managers are predicting stronger economic growth next year.

Fund managers are the most bullish they have been all year following vaccine breakthroughs for Covid-19, says Bank of America Merrill Lynch.

In its Global Fund Manager Survey for December, the group found that professional investors are boosting their exposure to consumer stocks, commodities and emerging markets in preparation for economies to reopen for business post-pandemic.

The average cash position dropped from 4.1% to 4% as optimistic managers put cash to work in the markets. As a result, fund managers are underweight cash for the first time since 2013.

Around 42% of investors said they expect the coronavirus vaccine will begin to have a positive impact on the global economy from the second quarter of 2021, while a bullish 28% expected an effect from the first quarter. Now just 30% of investors say Covid-19 is the number one tail risk, down from 41% in the previous survey. It is perhaps no surprise then that the majority of respondents (89%) are predicting stronger economic growth next year.

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Emerging markets set to shine

Some 60% of those surveyed said emerging markets would be the best performer of 2021. Investors are running their highest allocations here since 2010, although they also remain overweight the US and Europe.

At the sector level, allocations to consumer discretionary and industrials are rising, and exposure to banks is at its first overweight since January. Technology has been a stellar performer in 2020 and it remains the largest overweight position among fund managers, while a record 31% of investors are long small-cap versus large-cap stocks. In fact, tech is still named as the most crowded trade, followed by short US dollar and long bitcoin.

Contrarian bets

Contrarian trades in December’s survey were to sell the vaccine in the first quarter of 2021, go long US dollar and short emerging markets, and to go long energy and consumer staples and short tech and industrials. 

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Investor optimism for above-trend growth and low inflation currently surpasses even that seen during the recovery from the global financial crisis, notes Bank of America Merrill Lynch.

“2020 was a year utterly dominated by Covid-19, which caused the quickest economic and financial market collapse of all time,” says the group’s chief strategist Michael Hartnett. “However, just half a year later, recovery expectations have also surpassed prior recessions in both speed and magnitude.”

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