Investor sentiment nears pessimism seen at lows of past 20 years: BofA survey

BofA's March global fund manager survey, which saw participation of 212 fund managers with $548 billion in assets under management, suggests investor sentiment is close to levels of pessimism seen at lows of past 20 years. Systemic credit event emerged as the top tail risk at 31 per cent of FMS investors. High inflation, hawkish central banks and worsening of geopolitics have emerged as other top tail risks.

Cash allocation, BofA suggested, jumped to 5.5 per cent in March from 5.2 per cent a month ago. March is, in fact, the 15th straight month when cash level stayed above the 5 per cent level -- the only period that saw higher cash allocation for longer was the 32-month bear market of 2000-2022! 

A net 41 per cent of participants said they were taking lower-than-normal risk levels, a 9 percentage points jump from February 2022 level. Risk appetite is comparable to levels seen in March 2022, the fund manager survey suggests.

BofA said FMS investors' sentiment worsened in February, with two out of three key measures of sentiment deteriorating month-on-month. The net percentage of FMS investors saying companies are overleveraged increased 8 per cent month-on-month (MoM)to net 23 per cent, the highest level since July 2021. A total of 55 per cent of FMS investors want corporates to improve balance sheets over increasing capital spending (21 per cent) or returning cash to shareholders (17 per cent), the survey suggested.

BofA said most fund managers continue to favour quality over junk at net 76 per cent; Net more than half of them (54 per cent) think low volatility will outperform high volatility stocks. Meanwhile, 42 per cent think large caps will beat small caps, the highest since October 2022.

Net-net, fund mangers were bullish on cash, emerging market (EM) equities and alternatives while they were bearish on US equities and equity as asset class.

FMS investors expecting global profits to worsen over the next 12 months, meanwhile, declined 8 percentage points to net 57 per cent, in the least pessimistic sentiment since March 2022.

Contagion risks across US regional banks last week drove investors out of the sector at the fastest pace since Russia's invasion of Ukraine. FMS investors cut longs (net 22 per cent last month) and turned net underweight banks (net 3 per cent UW), BofA said.