Global confidence improved for the first time since June, according to the latest data from the Bank of America (BofA).
BofA’s September Fund Manager Survey (FMS) found that its broadest measure of fund manager sentiment – based on cash levels, stock allocation and economic growth expectations – went from 3.6 to 3.9.
Meanwhile, this month, FMS investors’ risk appetite hit an 11-month low, with almost a quarter (23%) of investors saying they were taking “levels risk lower than normal.
The bank also noted the presence of a “big shift” from global cyclicals to bond-sensitive stocks, with the number of investors expecting the stock to outperform growth hitting a 10-month high .
“The month of September was marked by a rotation into defensive sectors and out of cyclical sectors… The relative net overweighting of fund managers in defensive stocks (utilities and basic goods) compared to cyclical stocks (energy , materials and industries) is now the highest since May 2020,” BofA said in its report. .
Commodities were caught up in the rotation, with allocations falling to a seven-year low, with a net underweight of 11 percent. This comes as a quarter of those surveyed believe gold is overvalued.
At the same time, investors were the most overweight in utilities since 2008, with a net overweight of 8 percent.
“Investors also turned to banks and away from technology in September,” BofA said.
Indeed, allocations to banks are now at their highest level since February last year, with a net overweight of 12%, while allocation to technology has stopped at its lowest level since April 2023, with a net overweighting of 3%.
On a relative basis, investors are now most underweight in technology compared to banks since February 2023.
“Improving sentiment in September saw FMS investors reduce their cash levels to 4.2 percent from 4.3 percent,” BofA said.
Fund managers continued to show a preference for quality and high grade, with 66 percent of respondents believing in high quality earnings stocks, while 29 percent believe high grade will outperform high yield bonds. .
Additionally, global growth expectations remain pessimistic for fund managers, with 42 percent of 243 respondents to the September survey expecting the economy to slow. This is notably a modest rebound from the eight-month low of 47 percent recorded in August.
Macroeconomic pessimism was more focused on China, however, with growth expectations falling to a three-year low as 18 percent of investors bet on a weaker Chinese economy.
In contrast, the US growth outlook improved slightly in September, with 51 percent of respondents forecasting a slowdown in the US economy for the next 12 months, compared to 56 percent in August.
When it comes to perceived tail risks, 40 percent of fund managers see the U.S. recession as the biggest concern, while unease over accelerating inflation rose from 12 percent to 18 percent.
On the other side of the coin, geopolitical concerns declined from 25% to 19%.
