In its fund manager survey release on 17 march, Bank of America describes fund manager sentiment as declining to six-month lox six months low.
Iran, and AI concerns have starkly impacted their outlooks.
Respondents raised cash allocation by 4.2% and 63% of them also flagged the trifecta risks of an AI bubble popping, inflation and geopolitics.
Looking ahead, Bank of America notes that fund managers are nowhere near as bearish as they have been at risk bottoms in the past years.
The bank also finds that fund managers remain overweight previous metals and semi conductors.
Global growth optimism plummeted from 39% to 7%. But 46% of respondents still see no landing, while 44% expect a soft landing versus 52% and 40% the previous month.
This comes in conjunction with a sharp repricing in short term rates outlook driven by rising energy prices. Only 17% of investors surveyed now expect lower short-term rates from 78% last August, and 46% a month ago. Steeper yield curve expectations also dropped from 80% to 56%.
While this paints an inflation focused picture, only 11% of the same respondents though Brent oil would be higher than US$90 by year end. Brent oil for December delivery is trading US$84 at the time of writing versus one hundred for the front month reflecting the yet small impact on forward looking energy price.
In the past week, Olivier Blanchard, the ex-director of the research department at the International Monetary Fund writing on social media said, “This suggests to me prices closer to 150-200 dollars per barrel.”
Investors had also an ambivalent view of current AI endeavours with 27% of surveyed managers expecting high corporate profits due to margin expansion while a record 33% now worrying about elevated capex levels.
Private credit news added to the capex induced angst, with credit default risk a more than normal concern sentiment rising sharply to 46% from 17%.
Outside of cash in terms of allocation, fund manager increased their bond allocation to a 36% underweight versus 40% the previous month. Concurrently, they reduced their exposure to equity from 48% overweight to 37% overweight.
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