Fund Manager Cash Levels Rise as Bullish Sentiment Cools, BofA Survey Finds

Investor bullishness is beginning to wane as fund managers increase their cash allocations, signaling a more cautious stance after a summer of strong risk appetite. According to Bank of America’s September Global Fund Manager Survey, average cash levels rose to 3.9%, up from 3.5% in the prior month.

Cautious Tone Emerges

The survey, led by BofA strategist Michael Hartnett, suggests that the "excess bullishness" that capped risk-taking over the summer has started to fade. Hartnett's team noted that it becomes "safe to increase risk exposure" when cash levels return to the 4-5% neutral zone, indicating that current levels are moving away from extreme optimism.

Despite the rising cash holdings, managers remain broadly positive on the economic outlook. Key sentiment indicators from the survey include:

• 55% of respondents expect a "no landing" scenario for the global economy.
• 38% anticipate a "soft landing," while only 2% foresee a "hard landing."
• Expectations for double-digit earnings growth over the next 12 months reached their highest point since August 2021.

Rising Risks and Crowded Trades

Ad

Investors identified a "disorderly rise in bond yields" as the biggest tail risk at 33%, an increase from 27% in August. Concerns are also growing around capital spending in the tech sector, with 42% of managers viewing AI hyperscaler spending as the most likely source of a credit event.

In terms of market positioning, "long global semiconductors" remains the most crowded trade for the fourth consecutive month, cited by 53% of participants. On the political front, a potential Democratic sweep in the U.S. midterm elections is seen as a growing risk that could trigger higher bond yields and lower stock prices, according to the survey.

Portfolio Adjustments

The shift in sentiment was reflected in portfolio allocations during September. Fund managers trimmed their overweight positions in stocks and commodities while maintaining a significant underweight in bonds. The survey also captured a rotation into sectors like healthcare, industrials, and banks, and away from real estate investment trusts (REITs) and consumer staples.