BofA Fund Manager Survey: Investors Underweight In Stocks Reaches 2009 Crisis Levels

The risk appetite of investors remains depressed, not far from the extreme pessimism of 2022 and comparable to the levels of the 2009 Great Financial Crisis, according to the most recent Global Fund Manager Survey (FMS) conducted by Bank of America.

BofA's overall risk sentiment barometer, which takes into account growth expectations, as well as equities and cash allocations, became increasingly pessimistic in April, reaching the most negative levels thus far in 2023. 

Another sign of the defensive stance of global fund managers is the strong underweight in equities relative to bonds, which is at levels not seen since the Great Financial Crisis.

BofA Sees "Pain Trades" If Recession Doesn't Materialize

"Bear sentiment is still contrarian supportive for risk assets" according to Bank of America chief investment strategist Michael Hartnett. The expert predicted "pain trades" in rising bond yield and a rally in bank equities and REITs (where there is presently a great deal of pessimism) if the consensus expectation for a recession is not soon realized in the second quarter. "If the recession hits in six months rather than six weeks, contrarian trades for April-May based just on FMS positioning include long US dollar, short gold, long banks-short bonds, long HY-short IG bonds, and long real estate-short tech," he said. 

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Key Takeaways From BofA Global FMS

• The BofA Global FMS polled 249 global institutional professionals in April, including 128 portfolio managers, 66 strategists/economists, 40 chief investment officers, and 15 others.
• A net 63% of investors anticipate a worsening economy, up 13 percentage points month-on-month to the gloomiest level since December 2022. 
• Thirty-five percent of investors believe the Fed will begin an easing cycle in Q1 2024, 28% in Q4 2023, 14% in Q3 2023, and 10% in Q2 2024.
• Eighty-nine percent of FMS investors expect above-trend inflation over the next 12 months, down from 92% in March 2023 but still much higher than anything observed since the run-up to the 2008 GFC.
• Thirty percent of investors think that "Long Big Tech Stocks," a segment of the market tracked by the Technology Select Sector SPDR Fund XLK, is the most crowded trade in April 2023.
• Half of FMS investors think IG bonds, which are tracked by the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, will outperform HY bonds, which are tracked by the iShares iBoxx $ High Yield Corporate Bond ETF HYG, over the next year, the highest level on record.
• A bank credit crunch and global recession were considered the highest tail risk in April, according to more than a third of investors.
• The second most feared risk was high inflation keeping central banks hawkish, just marginally lower than the credit crunch.
• Investors are the most bearish on real estate since July 2009. Half of FMS investors think that US/EU commercial real estate (CRE) is the most likely source of a credit event.

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