Pessimism Reigns Supreme Among Fund Managers: Bank of America Survey Reveals 5 'Contrarian' Trades To Watch

A survey conducted by Bank of America Corp. revealed fund managers' pessimism reached the highest level in 2023 as investors increased cash balances and became more pessimistic about growth.

Long big tech (32%), short banks (22%) and short the U.S. dollar (16%) were found to be the most "crowded trades" in the survey.

Net 65% of investors polled by Bank of America forecast a poorer economy in 2023, up from 63% in April, with net 47% of investors saying recession is likely in the next 12 months, unchanged from April. 

The end of the Fed rate hiking cycle is predicted by a sizeable majority of investors at 61%, but only 43% believe the Fed will start hiking by January 2024. 

Regarding the debt-ceiling negotiation, a very large majority — 71% — of managers expect the U.S. debt ceiling will be raised by the deadline.

5 Contrarian Trades Emerging From The Bank of America's Global Fund Manager Survey

1) Long Real Estate Investment Trusts (REITs)
Investors are most underweight in the real estate sector since July 2009. An exchange-traded fund tracking REITs is the Real Estate Select Sector SPDR Fund XLRE.

2) Long Banks & Value Stocks

Short U.S. banks is the second-biggest crowded trade among investors surveyed by Bank of America. Investors have also been focusing on growth against value stocks since July 2020. Two ETFs to express this view are the SPDR S&P Bank ETF KBE and the iShares Core S&P Value ETF IUSV. 

3) Short Bonds

Bond allocation increased 4 ppt month-over-month to a net 14% overweight, the highest overweight since March 2009.

4) Short Tech

Allocation to technology jumped 14ppt monthly to net 16% overweight, the highest level since December 2021. Long big tech is considered the most crowded trade in the Bank of America survey. The ProShares Short QQQ PSQ is an exchange-traded fund that reflects this contrarian view.

5) Long U.S. Dollar

Shorting the U.S. dollar is the third most-crowded trade among fund manager investors polled by Bank of America. The Invesco DB USD Index Bullish Fund ETF UUP provides exposure to the U.S. dollar.

Read Also: Fed Officials Curb Investor Enthusiasm: 'I Can't Say We're At The Level To Hold'

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