Global Fund Manager Survey

Reverse Leverage

Authored By
Analyst Name Michael Hartnett
Analyst Email michael.hartnett@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 1508
Analyst Name Elyas Galou
Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.
Analyst Email elyas.galou@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofASE (France)
Analyst Phone +33 1 8770 0087
Analyst Name Anya Shelekhin
Analyst Email anya.shelekhin@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 3753
Analyst Name Myung-Jee Jung
Analyst Email myung-jee.jung@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 0389
Report Details
17 October 2023 Investment Strategy Global

Global Fund Manager Survey

Reverse Leverage

Authored By
Analyst Name Michael Hartnett
Analyst Email michael.hartnett@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 1508
Analyst Name Elyas Galou
Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.
Analyst Email elyas.galou@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofASE (France)
Analyst Phone +33 1 8770 0087
Analyst Name Anya Shelekhin
Analyst Email anya.shelekhin@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 3753
Analyst Name Myung-Jee Jung
Analyst Email myung-jee.jung@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 0389
Report Details
17 October 2023 Investment Strategy Global
Glossary
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Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies.

>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.

Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions.

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

 

 

Key takeaways
  • FMS turns bearish again...cash levels to 5.3%, BofA trading rules at/close to buy signal...4.2k SPX = hard Q4 floor
  • Record say "tight money-easy fiscal" policy mix...once investors see govt deleverage, pivot to own corporate leverage
  • Lower inflation 80%, lower short rates 73%, soft landing 59%, lower bond yields (56%)...consensus into 2024

BofA Data Analytics


Global Fund Manager Survey

 

Notes to Readers

Source for all tables and charts:
BofA Fund Manager Survey, DataStream

Survey period 6th to 12th Oct 2023

295 panellists with $736bn AUM participated in the October survey. 259 participants with $664bn AUM responded to the Global FMS questions and 165 participants with $334bn AUM responded to the Regional FMS questions.

How to join the FMS panel

Investors/clients are encouraged to sign up to participate in the Survey. This can be done by contacting Michael Hartnett or your BofA sales representative.

Participants in the survey will continue to receive the full set of monthly results but only for the relevant month in which they participate.

 

Global Fund Manager Survey

BofA October Global Fund Manager Survey

  Bottom line: FMS investors turn bearish again: cash levels jump from 4.9% to 5.3%, net 50% expect weaker global growth, allocators stay neutral stocks; BofA Bull & Bear Indicator at 2.2 = close to buy signal, FMS Cash Rule (>5%) = buy signal; positioning says 4.2k SPX now hard Q4 floor absent >5% yields (note 2 out of 3 expect year-end rally).

On Macro: "hard landing" expectations (30%) on the rise but Goldilocks "soft landing" (59%) remains investor base case; global profit outlook up on bounce in China optimism; lower inflation (80%), steeper yield curve (75%), lower short rates (73%), lower bond yields (56%) = consensus next 12 months.

On Policy: record number say "monetary policy too tight-fiscal policy too easy" (policy mix as bond bearish/US$ bullish as it gets); asked for driver of higher bond yields50% say govt debt/deficits vs 32% strong economy = govt deleveraging would be +ve; CIOs want corporate too: 53% tell CEOs to improve balance sheets, 25% boost capex, 15% return cash to investors; only once yields peak will leverage outperform quality.

On Crowds & Contrarians: Oct rotation out of Europe & EM (1st UW since '22) into Japan (most OW since Oct'18), out of staples & utilities (high leverage) into commodities & energy (geopolitics); most crowded trade "long big tech" (low leverage); contrarian trades: short commodities, US tech & Japan, long EM, Eurozone, REITs & staples.

Chart 1: The Q4'23 theme is Deleveraging

Net % saying recession likely vs % wanting companies to improve balance sheets

Chart 1: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

Global Fund Manager Survey

Charts of the Month

Chart 2: FMS sentiment remains bearish

Percentile rank of FMS growth expectations + cash level + equity allocation (scale 1-10)

Chart 2: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey; (0=bearish, 10 = bullish)

BofA GLOBAL RESEARCH

 

 

Our broadest measure of FMS sentiment, based on cash positions, equity allocation & economic growth expectations fell to 1.7 from 2.2

summer improvement in FMS investor sentiment rolling over into the fall.

 

Chart 3: BofA Global FMS Cash Rule triggers "Buy" signal

FMS average cash level % AUM

Chart 3: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

FMS cash levels as % of AUM up from 4.9% to 5.3% in Oct, triggering "buy" signal for BofA Global FMS Cash Rule.

Since 2011, the "buy" signal would have seen S&P 500 returns of 2% in the 2 months after, 4% in the 3 months after, 7% in the 6 months after (see Rules & Tools).

 

Chart 4: Notable ongoing disconnect between FMS macro view and US equities

Net % expecting stronger economy vs S&P500 price change YoY (%)

Chart 4: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey, Bloomberg

BofA GLOBAL RESEARCH

 

 

Growth expectations remain pessimistic with net 50% of FMS investors expecting a weaker global economy over the next 12 months (vs net 53% in September).

Note ongoing disconnect between equity market and growth expectations.

 

Chart 5: "Soft" landing consensus but "hard landing" expectations on the rise

What is the most likely outcome for the global economy in the next 12 months?

Chart 5: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

"Hard landing" concerns on the rise at 30% (vs 21% in September)

but 59% of FMS investors still see "soft landing" as the base case (5% say "no landing").

 

Chart 6: Profit outlook improves along with macro data

Net % say global profits will improve vs ISM manufacturing new orders/inventories

Chart 6: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey, Bloomberg

BofA GLOBAL RESEARCH

 

 

Global profit expectations improve back to Aug'23 level (net 37% expect global profit growth to deteriorate vs 41% in Sep'23)least pessimistic outlook for profits since Feb'22.

Improvement in profit outlook in line with leading indicator of ISM manufacturing new orders/inventories which has been signalling PMIs to rise >50.

 

Chart 7: Bounce in China growth outlook

Net % expecting stronger Chinese economy

Chart 7: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

October FMS sees bounce in optimism for China growth outlook with net 14% expecting a stronger Chinese economy over the next 12 months (vs 0% in September).

Growth expectations still far off from post-reopening peak of net 78% expecting a stronger Chinese economy.

 

Chart 8: 1 out of 4 expect no recession next 18 months, rising share see recession risk in H1'24

When do you expect the global economy to fall into recession?

Chart 8: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

1 out of 4 FMS investors expect that there will be no recession in the next 18 months.

That said, the share of investors expecting a recession in H1'24 is rising44% expect the global economy to fall into recession in Q1'24 or Q2'24 (vs 36% in the September FMS).

 

Chart 9: CIOs tell CEOs to reduce leverage in October

What FMS investors would most like to see companies do with cash flow?

Chart 9: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

53% of FMS investors want corporates to improve balance sheets (up 9ppt MoM to highest level since May'23) over increasing capital spending (25%) or returning cash to shareholders (15%).

Strong focus on balance sheet repair often associated with elevated recession risk: 71% FMS investors wanted to see companies reduce leverage in Mar'09, 79% in Apr'20, 60% in Oct'22.

 

Chart 10: 80% of FMS investors expect lower CPI, 73% see lower short-term rates in 12 months

FMS % expecting lower global CPI vs % expecting lower short-term rates

Chart 10: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

Consensus is for lower short-term rates and lower inflation, with expectations for both hovering near GFC highs

80% expect global CPI to be lower and 73% expect short-term rates to be lower in 12 months' time.

 

Chart 11: 75% of FMS investors think yield curve will steepen next 12 months

FMS % expecting yield curve to steepen next 12 months

Chart 11: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

75% of FMS investors expect the yield curve to steepen in the next 12 months in Oct'23 (vs 77% last month), a proportion on par with the highs observed in Nov'08 (GFC), Nov'16 (US presidential election), although below the record high of 87% in Feb'21.

 

 

Chart 12: 56% of FMS investors see lower bond yields next 12 months

FMS % expecting lower long-term rates

Chart 12: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

56% expect bond yields to be lower, the highest share of respondents on record (back to 2003).

 

 

Chart 13: 60% of FMS investors say Fed is done

Do you think the Fed has finished its rate hike cycle?

Chart 13: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

Majority (60%) of FMS investors still convinced Fed has finished its rate hike cycle.

 

Chart 14: 1st Fed cut expected in H2'24

When will the Fed first cut interest rates?

Chart 14: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

More than half of FMS respondents expect the 1st Fed rate cut to occur in H2'24 (32% say in Q3'24, 20% say Q4'24).

Rising share expect the 1st cut to occur after 2024 (10% in October vs just 5% in September).

 

Chart 15: Big debt & deficits causing the rise in yields

What do you think is causing the rise in government bond yields?

Chart 15: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

1 in 2 investors attribute the rise in government bond yields to high government debt & deficits.

1 in 3 investors say strong nominal economic growth the cause.

 

Chart 16: Record high in "Tight Monetary-Easy Fiscal"

Net % think fiscal policy is too stimulative - Net % think monetary policy is too stimulative

Chart 16: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Fund Manager Survey

BofA GLOBAL RESEARCH

 

 

Net 24% say monetary policy is too restrictive, the highest since Nov'08

while net 31% think fiscal policy is too stimulative.

This chart looks at the two series togethernet 54% say monetary policy is too tight and fiscal policy too stimulative (the most on record).