Cash levels with fund managers globally highest since 9/11; most do not expect v-shaped recovery

In what can be interpreted as a sign of pessimism across global equity markets, a survey of fund managers across the globe, has shown that cash levels are at the highest level since the 9/11 terrorist attacks.

In what can be interpreted as a sign of pessimism across global equity markets, a survey of fund managers across the globe, has shown that cash levels are at the highest level since the 9/11 terrorist attacks. The Bank of America Securities (BofA) Global Fund Managers Survey shows that average levels were at 5.7% in the month of May, well above the 10-year average of 4.7%. “May FMS (Fund Manager Survey) leaves BofA’s Bull & Bear Indicator pinned at 0, i.e. investors still extremely bearish,” BofA said. Interestingly only 10% of the fund managers that took part in the survey expect the recovery to be V-shaped while 75% think the recovery is likely to be U shaped or W shaped. 

The survey showed that fund managers were underweight on cyclical assets such as energy, industrials, and materials while the sentiment towards Healthcare, Bonds, and the telecom sector is completely opposite. “Net 23% of the survey participants believe value will underperform growth, last time this many fund managers expected value to underperform growth was in December 2007,” BofA survey said. A large number (73%) of the fund managers said that companies should use cash available to them on improving their balance sheets. This meant they were looking forward to companies cutting debt. Interestingly 15% said companies should increase capital expenditure while only 7% were in favour of returning cash to shareholders through share buybacks and dividends.

Global growth which has fallen due to the coronavirus pandemic is expected to strengthen over the next year. “FMS global growth expectations jumped by 40ppt to net 38% (65% stronger, 28% weaker) of FMS investors expecting global growth to strengthen over the next 12 months, but investors do not expect global manufacturing PMI to rise back above 50 before November,” it said. In the post coronavirus world as the globe gears up to act differently, fund managers believe the biggest structural shift will be seen in terms of supply-chain reshoring or localisation. Rise in protectionism and higher taxes are also being expected. 

In a year that will also see the United States Presidential Elections, fund managers believe that coronavirus will continue to pose as the biggest tail risk going forward. Despite this May saw fund managers increase their equity allocation by 10pp, investment in bonds jumped to net 13%, highest since July 2008, according to BofA. “FMS investors continued to increase their exposure to growth (technology). They are still most overweight defensives (healthcare, staples) and underweight sectors geared to cyclical growth (energy, resources, banks), but are less overweight and underweight respectively than last month,” BofA said.