Why fund managers have turned even more bullish

With stocks near all-time highs, and inflation gradually returning to target, it is no wonder fund managers are feeling bullish. 

Bank of America’s latest survey of professional investors found that they were at their most optimistic on the outlook for markets since January 2022, with the April poll showing the largest jump in optimism about global economic growth in nearly four years.  

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In response, cash levels dropped to 4.2%, from 4.4% in March. When cash drops to under 4%, Bank of America views this as a signal to sell shares, as investors are too complacent, and markets could be overbought. Cash above 5% is a buy signal for equities, it says. 

The April survey, which covers investors with $719 billion (£577 billion) in assets, also found that most investors expect global growth to accelerate, with nearly four-fifths saying that a global recession is now unlikely.  

Linked to the strong outlook for economic growth, investors moved to sell bonds. Bonds don’t do well when interest expectations move higher, which could come about as a consequence of stronger-than-expected economies. April showed the largest drop in bond allocation since July 2003. Falling bond prices mean higher yields for new investors.  

Investors moved money into commodities this month and are now, on average, overweight the sector.  

Gold has been on a strong run, now trading at around $2,400 (£1,926) an ounce.  

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Analysts put its price gains down to worries about inflation, geopolitical uncertainty and demand from central banks.  

However, Bank of America found that gold is its most “overvalued” since August 2020, which suggests there may be a pullback soon. 

Owning the “Magnificent Seven” technology shares in America continues to be popular and is the most crowded trade currently, while demand for Japanese shares also continued, making it the second-most crowded trade.  

In the first three months of the year, both the US and Japan saw their stock markets hit record highs. For the US, hitting a new peak happens fairly regularly. Data from Schroders, the fund manager, shows that of the 1,176 months since January 1926, the market was at an all-time high in 354 of them, so 30% of the time. 

However, for Japan, its stock market reached a new all-time high in late February for the first time since December 1989.