October Bank of America Global Fund Manager Survey Results (Summary)

~224 Managers overseeing ~$600B AUM responded to this month’s BofA survey.

OUTLOOK:

Theme: “October Fund Manager Survey (FMS) said the recession is over, reduce cash, pause cyclical rotation, and price in contested election. Cyclical rotation via banks/energy to resume in Q4.”

-A net 39% of investors expect a credible Covid-19 vaccine to be announced in the first quarter.
-61% OF POLLED INVESTORS BELIEVE U.S. ELECTION RESULT WILL BE CONTESTED.
-RECESSION EXPECTATIONS IN NEXT 12 MONTHS COLLAPSED.
-60% SAY THE GLOBAL ECONOMY IN EARLY-CYCLE PHASE VS 26% IN RECESSION.
-Nearly three quarters of investors surveyed by Bank of America (BofA) expect a surge in financial market volatility in the fourth quarter.
-Investors continue to expect a bumpy or a slow recovery, with -Majority (59%) expect either a W- or U-shaped recovery. Just 19% say V shaped despite US fiscal policy.

SENTIMENT:

-RECESSION EXPECTATIONS IN NEXT 12 MONTHS COLLAPSED; 60% SAY GLOBAL ECONOMY IN EARLY-CYCLE PHASE VS 26% IN RECESSION.
-Max Conviction: Tech.
-Rising Conviction: Healthcare.
-Max Despair: Energy and Banks.
-BofA Bull Bear Indicator at 3.8, indicates final capitulation into risk ahead in Q4.
-27% of survey participants saying they are overweight stocks. According to BofA, this level shows they are optimistic on equities, but not “dangerously.”

POSITIONING:

-BofA: Michael Hartnett said they expect the cyclical equity rotation into banks and energy to resume in the fourth quarter.
-FMS investor optimism on stocks higher (net 27% OW) but not yet extremely bullish
-TECH LEADERSHIP IN EQUITIES IN 2021: 50% SAY YES, 43% SAY NO
-Investors lowered their cash levels from 4.8% to 4.4%. When cash levels are above 5%, it indicates “fear” and when levels are below 4%, it indicates “greed.”
-Hedge funds increased net equity exposure to 42% from 30%, the highest level since June 2020.
-Most underweight energy since April. (2.1 SD underweight)
-Most Overweight Healthcare since May (1.8 SD overweight)
-Managers are moving into Value over Growth and Small Caps over Large Caps.
-Fund managers paused the rotation into cyclicals, selling energy and banking stocks along with bonds while buying healthcare, staples and Japanese shares.
-Allocation to Euro-zone stocks increased 4 percentage points to a net 26% overweight, to remain the region with the highest overweight globally.
-Allocation to U.S. equities rose 1 percentage points to a net 19% overweight.
-Investors remain deeply net underweight U.K. stocks at 33% even after slightly increasing allocation.
-Exposure to Japanese stocks increased the most of any region in October to a net 4% overweight.
-Sellers Strike: Tech
-Buyers Strike: Banks, Energy

-Healthcare over Energy is close to all-time highs (high was Apr’20). The spread was net +41% overweight for Healthcare and -30% underweight for Energy.

-Extremes: Largest short in energy in 20 years. Healthcare OW surges to #1.

-Retail funds (i.e. mutual funds) reduced elevated cash levels this month to 4.3% while Institutional funds (i.e. pension, insurance) reduced cash levels to 3.6%.