Global Fund Manager Survey from BAML

Global Fund Manager Survey – Party like it’s 2019

Global Fund Manager Survey

January BofAML Fund Manager Survey key takeaways

Bottom line: Jan FMS asset allocation reflects “buy the first rate hike, sell the last rate hike” playbook (Chart 1); investors long, unprotected, & say equity bull runs to ’19; bull capitulation means vol spike imminent but requires surge in inflation & yields.

FMS investors now say no equity peak in 2018 (Dec FMS said Q2’18 peak); level of investor hedging lowest since Jan’14; but drop in cash level from 4.7% to 4.4% (5-year low) not sufficient to trigger “sell signal” (BofAML Bull & Bear indicator at 7.1)

FMS investors most OW stocks relative to govt bonds since Aug’14; bond paranoia rife (#1 tail risk = inflation/bond crash) as FMS inflation expectations fourth highest since 1995, but until rising rates affect EPS asset allocators are determined to stay long

FMS Jan rotation is pro-cyclical: into tech (biggest monthly rise since Jul’14), industrials, EM, equities; out of telecom (2nd lowest since ‘05), bonds, utilities, UK

FMS most crowded trade = short Vol, followed by long FAANG+BAT; contrarian relative trade is now buying bond proxies & the US dollar should growth unexpectedly falter; by end-Q1 we expect peak Positioning to combine with peak Profits & Policy to create spike in volatility.

Exhibit: Buy the first, sell the last rate hike
Exhibit-1
Source:  BofA Merrill Lynch Global Investment Strategy, Bloomberg

FMS cash rose to 4.4% (avg = 4.5% past 10 years) taking the FMS Cash Rule into “neutral” territory level, no longer a “buy” signal. BofAML Bull & Bear indicator at 7.1, but cash did not fall sharply enough to trigger 8.0 “sell” signal.

As a reminder, the FMS Cash Rule works as follows: when average cash balance rises above 4.5% a contrarian buy signal is generated for equities. When the cash balance falls below 3.5% a contrarian sell signal is generated.

Exhibit: Month-on-Month changes to Global FMS positioning
Exhibit-2
Source: BofA Merrill Lynch Global Fund Manager Survey, Bloomberg

 January FMS allocation is pro-cyclical.

Exhibit: The Longs & Shorts, relative to Global FMS history*
Exhibit-3
Source: BofA Merrill Lynch Global Fund Manager Survey. *data since 2006 for commodities & real estate; since 2001 for everything else

 January rotation shows buying of cyclical plays and selling of defensive plays.

Exhibit: Month-on-Month changes to Global FMS positioning
Exhibit-4
Source: BofA Merrill Lynch Global Fund Manager Survey

A majority of investors now expect a peak in equity markets in 2019 or beyond, pushing back the timing by two quarters from December, when the majority expected a top in Q2 2018.

Exhibit: When do you think the equity market will peak?
Exhibit-5
Source: BofA Merrill Lynch Global Fund Manager Survey

Investor concerns about protectionism slip to 63%, but remain well above long-term average of 45%.

Exhibit: Net % think Protectionist Risk above normal
Exhibit-6
Source: BofA Merrill Lynch Global Fund Manager Survey

 

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