Global sentiment has improved for the first time since June, Bank of America’s (BofA) latest data has shown.
BofA’s September Fund Manager Survey (FMS) revealed that its broadest measure of fund manager sentiment – based on cash levels, equity allocation, and economic growth expectations – rose from 3.6 to 3.9.
At the same time, this month has seen FMS investor risk appetite at an 11-month low, with almost a quarter (23 per cent) of investors saying they were taking “lower than normal risk levels”.
The bank also noted the presence of a “big shift” from global cyclicals to bond sensitives, as the amount of investors expecting value to outperform growth was at a 10-month high.
“September saw a rotation into defensive sectors and out of cyclical sectors … fund managers’ relative net overweight in defensives (utilities and staples) versus cyclicals (energy, materials and industrials) 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 to net 11 per cent underweight. This comes as a quarter of respondents believe that gold is overvalued.
Meanwhile, investors were the most overweight in utilities since 2008, at net 8 per cent overweight.
“Investors also rotated into banks and out of tech in September,” BofA said.
Namely, allocations to banks now stand at their highest since February of last year, at net 12 per cent overweight, while allocation to technology stopped to its lowest since April 2023, at net 3 per cent overweight.
On a relative basis, investors are now most underweight in technology versus banks since February 2023.
“September’s improvement in sentiment saw FMS investors lower cash levels to 4.2 per cent from 4.3 per cent,” BofA said.
Fund managers continued to show a preference for quality and high grade, with 66 per cent of respondents believing in high-quality earnings stocks, while 29 per cent say high grade will outperform high yield bonds.
Moreover, global growth expectations remained pessimistic for fund managers, with 42 per cent of September’s 243 survey respondents expecting a weaker economy. Notably, this was shown to be a modest rebound from August’s eight-month low of 47 per cent.
Macro pessimism was more concentrated on China, however, with growth expectations falling to a three-year low as 18 per cent of investors are placing bets on a weaker Chinese economy.
In contrast, the US growth outlook improved slightly in September with 51 per cent of respondents projecting a weaker US economy for the next 12 months, down from 56 per cent in August.
Turning to perceived tail risks, 40 per cent of fund managers viewed US recession as the greatest concern, while unease over accelerating inflation rose to 18 per cent, up from 12 per cent.
On the other side of the coin, geopolitical concerns eased to 19 per cent from 25 per cent.
