In a recent survey conducted by Bank of America, it was revealed that money managers are displaying a growing inclination towards bonds while also rekindling their interest in equities.
The November Fund Managers Survey, encompassing 265 panelists managing a combined total of over $630 billion in assets, indicated a significant drop in cash levels, plunging to a two-year low of 4.7% from October’s 5.3%. Notably, a considerable portion of this reduced cash reserve found its way into bonds, leading to the highest overweight position in bonds since early 2009.
Michael Hartnett, a strategist at BofA, highlighted a pivotal shift in the survey results: “The big change in the November FMS was not the macro outlook, but rather the conviction in lower inflation, rates, and yields.” This conviction is evidenced by the third largest overweight stance in bonds witnessed in the last two decades, with the only comparable scenarios observed in March 2009 and December 2008.
Amidst this pronounced interest in bonds, stocks also received a notable uptick in attention. “A stable macro outlook and a much more optimistic view on rates has taken FMS investors’ equity allocation overweight for the 1st time since April 2022,” Hartnett mentioned. The survey revealed a shift from a net 4% underweight to a net 2% overweight in equities during November.
Furthermore, the survey highlighted heightened investor interest in the technology sector relative to banks, reaching levels not seen since November 2020. “Investors bought tech stocks at the fastest pace since May 2023 and are now the most overweight since November 2021,” noted Hartnett. This surge in interest was accompanied by a reduction in allocation to bank stocks, reflecting a net 10% underweight position.
One of the most intriguing findings from the survey was the emergence of the ‘long leverage, short quality’ trade as the most contrarian trade of 2024. Additionally, the panel members identified long big tech as the most crowded trade, followed by short China stocks and long T-bills. Notably, short 30-year Treasuries was identified as a new addition to the list of most crowded trades, with short REITs and long Japan stocks completing the list.
When assessing the biggest tail risks, geopolitical tensions rising to a worsening stage claimed the top spot, displacing high inflation as the primary concern keeping central banks cautious. This was followed by fears of a hard landing, a credit event, and the bursting of an AI bubble.