The only two assets pro investors are bullish on right now

A big equity rotation has been revealed by professional investors after their allocation to European equities showed its second-largest jump in the past 25 years.

Bank of America’s closely watched fund manager survey for January also disclosed a cooling towards US stocks after record positioning the previous month.

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The overall picture remains positive, given that a net 41% of survey investors are overweight global stocks compared with the post-US election three-year high of 49% in December.

The bottom line of the survey is that investors are bullish on the US dollar and equities and bearish everything else, including the most underweight on bonds since October 2022.

However, if January’s concerns over Donald Trump’s planned tariffs and disorderly bonds prove to be unfounded, it adds that there’s potential for lagging risk assets to play catch-up.

That underpinned the rotation to eurozone asset allocations, which swung from a 25% underweight position to a net 1% overweight in the biggest monthly change since 2015.

Investors are 19% overweight US stocks as some of the post-election market euphoria begins to cool after a record 36% overweight position in December’s survey.

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In terms of the UK, a net 16% underweight position is the lowest allocation since April and only exceeded by the current unpopularity of bonds.

The post-Budget flight from the UK comes after September’s report revealed the first overweight position in UK equities since July 2021.

In other big moves, a net 14% expect large-cap stocks to outperform in a flip from last month's net 12% expecting small-caps to outperform their larger peers.

A net 1% expect value to outperform growth, down from the 20% figure in December and the lowest since July. Meanwhile, the 14% backing for high-dividend yield stocks to outperform low-yielding ones is the lowest since October 2020.

The most-crowded trade continues to be Magnificent Seven stocks, followed by long positions on the US dollar and cryptocurrencies.

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Allocations to cash remained unchanged in January at 3.9%, the lowest level since June 21 and the second monthly sell signal under the survey’s Cash Rule of below 4%.

Since 2011, there have been 12 prior sell signals which saw global equity returns of 2.4% in the one month after and 0.7% in the three months after the “sell” signal was triggered.

The investor probability of a “soft landing” for the global economy fell to 50% from 60% but “no landing” expectations rose to 38% from 33%.

The survey finds that 26% of respondents expect a global economic “boom” in the next 12 months, the highest level since April 2022.

The biggest “tail risk” for 41% of participants is that stubborn inflation causes the Federal Reserve to hike interest rates, followed by fears of a recessionary trade war.

The survey took place between 10-16 January and involved 214 panellists with $576 billion (£466 billion) of assets under management.