Fund Managers see No Reason to be Bearish, Engage in "Higher-than-Normal" Risk Taking

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A much watched survey of fund managers shows an exceptional level of bullish sentiment amongst the world's most important investor community, driven by the cementing of expectations that 2021 will see a strong global economic recovery.

"The only reason to be bearish is… there is no reason to be bearish," says Michael Hartnett, Chief Investment Strategist at Bank of America.

The latest Bank of America Global Fund Manager Survey shows that sentiment on global growth had now reached an all-time high as a view that a v-shaped recovery from the coronacrisis was now a consensus expectation.

Fund manager cash levels were revealed to be at an 8-year low as investors looked to put their money to work.

Cash was sent into equity & commodity markets with allocations in these two sectors revealed to be at their highest since 2011.

Hartnett reflects 2011 was the last year both sectors delivered negative returns, a potentially sinister observation on current investor exuberance.

Indeed, only 13% of fund managers said they believed the market had reached a bubble stage, this despite the Survey revealing a record number of investors were taking "higher-than-normal" risk.

A net 91% of investors told the survey that they expected a stronger economy in 2021, with the majority now saying it's a V-shaped recovery.

Investors want CIO's to "increase capex" rather than "improve balance sheet".

Inflation expectations and Earning Per Share expectations were close to record highs as were expectations for rising yield curves in fixed income markets.

The Fund Manager Survey showed cash level holdings were down to 3.8% which is the lowest level since March 2013, Hartnett says this was just before Bernanke triggered the "taper tantrum" by indicating the U.S. Federal Reserve was poised to start exiting its quantitative easing programme.

With investors appearing exuberant, what potential risks are they seeing that might spoil the 'risk on' party?

Regarding the risks to the bullish stance, investors say a delayed vaccine rollout is the major key risk. The timing of the positive impact of the rollout has slipped to July.

Another taper tantrum is seen as the second most important risk while inflation is seen as another.

The most "crowded trades" are said to be 'long' technology (35%) and 'long' Bitcoin (27%), while short dollar (13%) is seen as the third most crowded bet.