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Money managers are getting more invested, pushing big bets into bonds and coming around to equities, according to the latest BofA survey.
The November Fund Managers Survey of 265 panelists with more than $630B in assets under management showed a big drop in cash levels, down to a two-year low of 4.7% from 5.3% in October.
Lots of that cash went to bonds, where managers are now the most overweight since early 2009.
“The big change in the November FMS was not the macro outlook, but rather the conviction in lower inflation, rates, and yields,” strategist Michael Hartnett wrote. That’s “evidenced by the 3rd largest overweight in bonds (TBT) (TLT) (SHY) (IEI) (LQD) (JNK) in the last two decades (only in Mar’09 and Dec’08 were investors more overweight bonds).”
Stocks also got some love.
“A stable macro outlook and much more optimistic view on rates has taken FMS investors’ equity allocation (NYSEARCA:SPY) (QQQ) (DIA) (IWM) (MDY) overweight for the 1st time since Apr’22,” Hartnett said. “FMS investors increased allocation to equities from net 4% underweight to net 2% overweight in November.”
“FMS investors are most OW tech relative to banks since Nov’20 (Covid vaccine),” Hartnett added.
“Investors bought tech stocks (XLK) (XLC) (XLY) at the fastest pace since May’23 (+12ppt MoM) and are now the most OW since Nov’21 (net 27% OW),” he noted. “FMS investors took down their allocation to bank stocks (XLF) (KBE) from net 2% UW to net 10% UW.”
“The most contrarian trade of 2024 is ‘long leverage, short quality.'”
Not surprisingly, panel members thought long big tech was the most crowded trade, followed by short China stocks (MCHI) and long T-bills. Short 30-year Treasuries (US30Y) was a new entrant in the most crowded list, with short REITs (XLRE) and long Japan stocks (EWJ) rounding it out.
Among the biggest tail risks, geopolitics worsening took the top spot, dislodging high inflation keeping central banks cautious, which dropped to No. 2. A hard landing, a credit event and the bursting of an AI bubble followed.
