“New highs, fewer bulls”
Preview of the latest report (18 February 2020):
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What’s inside the report?
Some extracts from a previously published report are shown below:
Global Fund Manager Survey – Party like it’s 2019
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.
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.
January FMS allocation is pro-cyclical.
January rotation shows buying of cyclical plays and selling of defensive plays.
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.
Investor concerns about protectionism slip to 63%, but remain well above long-term average of 45%.