Fund Managers’ Latest Market Outlook Is Interestingly Bullish
What they think in details of the market, according to the latest survey.
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Bank of America regularly rolls out a survey on fund managers called BofA Global Fund Manager Survey (FMS). The survey is conducted on a monthly basis. Tapping into the minds of fund managers can provide insightful information on what they think about the current market situation.
In November, a total of 216 fund managers participated. Participants were fund managers with $573 billion in assets under management. The survey ended on Nov. 12, just after Pfizer announced that its vaccine trials achieved a more than 90% success rate.
The result for this month’s survey is the most interesting of 2020. In short, this month fund managers are the most bullish in the year. Let’s tap into the survey details.
What’s the hot investment of 2021?
Interestingly, fund managers are the most bullish on overseas investment, in particular, the emerging markets. Twice of fund managers believe more in emerging markets than the S&P500.
The survey is in line with what I have read in this The Startup article. It wrote that Ray Dalio’s Bridgewater — one of the largest hedge funds in the world — is expanding more into overseas investments, with a tripled amount of investment in iShares MSCI Emerging Markets ETF, while also added individual positions in Chinese companies like Alibaba and NIO.
What is the reason behind the optimism toward emerging markets?
I’d say it’s a better coronavirus handling in emerging countries, especially in Asia. Countries like Taiwan has hit 200 days without any local transmission. Meanwhile, China also manages to curb the spread of coronavirus to a low level.
They are still cautious the most about the pandemic
Coronavirus remains an important concern for fund managers, as it has always been since the April 2020 survey. Therefore, better coronavirus handling is always preferred. So far, emerging markets are better in providing an assurance compared to the U.S and Europe.
Then there’s also the weakened dollar, which Goldman Sachs predicted could go as low as 15% for the next two years. The FMS survey further pointed out that 21% of fund managers believe overseas currencies are currently undervalued while the U.S dollar is overvalued.
Tech stock bubble burst
Apart from the pandemic, fund managers are second-most concerned with tech stock bubbles. It’s no secret that everything is overvalued right now. A possibility of a bubble will drag down the whole market, especially when the S&P500’s weight is heavily concentrated on tech stocks.
Fund managers have been rotating to value stocks lately. Aided with good news surrounding successful vaccines, perhaps it is their mitigation plan against the possibility of a bubble burst.
No more concern over the U.S election, but over possible civil unrest
In the October survey, a contested election was a big concern, where the majority of fund managers think it will cause volatility.
However, as shown in this month’s survey, a contested election is no longer a concern. Even better, the latest development showed that Trump has agreed to begin the transition protocol.
Although fears surrounding a contested election has diminished, fund managers have a new concern: a possibility for unrest. I can not find more specific information regarding what they meant about unrest. It could be the election, but my guess, it could also mean any pandemic-related unrest.
The pandemic fatigue has grown the uneasiness among the general public. There have been protests against lockdown all over Europe. In the U.S, stalled stimulus talk, lockdown and masks-related discontents, and suspicions against vaccines could also pose a threat to stability, which any investor would prefer.
This is also why emerging markets — particularly Asia — are seen as safer investment opportunities. Such large-scale displays of discontents are less likely to happen there. For example, a survey in South Korea showed that 45% of respondents are generally content, while another 20% are very content with how the Korean government has been handling the pandemic.
Reduced cash positioning
This month’s FMS also shows another interesting thing. Fund managers have been splurging and being lenient with cash levels. Cash positioning was down from 4.4% last month to 4.1%. It’s the lowest level of the year and also the fastest drop in a month for 2020. A note from the survey says it almost hit the FMS Cash Rule sell signal.
Cash levels above 5% indicate “fear” among fund managers. Meanwhile, when levels are below 4%, it hits the “greed” level.
Takeaway
Fund managers are optimistic about the future of the economy, especially in emerging markets. Cash positions are decreasing, they are buying and being carefree about it. But the pandemic remains a concern and they are cautious about tech stocks too.
Individual investors can take note of their bullish stance toward the market. You might want to follow their steps for being less frugal, rotating tech to value, and looking for opportunities overseas. On the other hand, contrarians can keep an eye on their “greed” level for the sell signal.
Meanwhile, long-term investors that had positions before the latest rally can just sit tight and let the profit run. Only this time, you can worry less about volatility.
Disclaimer: This article is for educational and informational purposes only, not professional investment advice.
