Bank of America’s August global fund manager survey reveals a striking disconnect between investor sentiment and positioning.
While an overwhelming 91% of respondents believe U.S. equities are overvalued—the highest reading on record—allocations to American stocks still increased modestly over the past month. This tension between valuation concerns and portfolio exposure underscores the complex environment wealth advisors must navigate for clients.
In August, investors reported a net 16% underweight to U.S. equities, an improvement from July’s net 23% underweight. This shift occurred despite persistent fears about lofty valuations, particularly among the market’s most dominant names. Since the Trump administration’s “Liberation Day” tariff announcement in April, sentiment has been shaped by a mix of geopolitical and macroeconomic crosscurrents, with positioning decisions reflecting both caution and opportunity.
Notably, the survey highlights a growing consensus that the U.S. stock market—especially the so-called Magnificent Seven megacap tech names—has reached stretched levels. The survey found 41% of respondents now believe AI-related stocks are in bubble territory, up from 37% in July. Moreover, 14% cited the bursting of that bubble as their top market risk, up from 10% a month earlier. For advisors, this suggests heightened scrutiny around concentrated growth exposures is warranted, particularly for clients with tech-heavy allocations.
Still, the broader risk outlook appears to be softening. Only 5% of managers are positioning for a “hard landing” in the global economy, continuing a trend of improving macro sentiment since April. Cash allocations remain lean at an average of just 3.9% of portfolios, reflecting an overall risk-on stance despite valuation worries. Additionally, trade war fears have eased, with 29% citing it as their biggest concern compared to 38% in July.
One of the most significant allocation shifts this month has been toward emerging market (EM) equities. A net 37% of investors are overweight EM stocks—the highest level since February 2023. Several factors appear to be driving this rotation, offering advisors actionable insights for diversification strategies.
First, currency dynamics are playing a pivotal role. The U.S. dollar has declined nearly 10% over the past six months against a basket of major currencies, a move that historically benefits EM economies. A softer dollar eases the burden on countries and companies with dollar-denominated debt, lowers borrowing costs, and boosts demand for commodities priced in dollars—a positive for resource-exporting nations. Survey data show investors remain notably underweight the U.S. currency in August, implying expectations for continued dollar weakness.
Second, sentiment toward China is improving. A net 11% of respondents now expect a strong Chinese economy, up sharply from just 2% in July. This rebound in outlook may reflect recent policy support measures from Beijing aimed at stabilizing growth, alongside incremental improvements in manufacturing and consumption data. For wealth advisors, the shift signals a potential re-rating of Chinese assets within globally diversified portfolios, though geopolitical and regulatory risks remain key considerations.
Beyond equities and currencies, the survey also sheds light on alternative asset positioning. Nearly half (48%) of managers report gold exposure, with an average portfolio weight of 2.2%. Gold’s role as a hedge—against both inflation and systemic risk—appears intact despite fading fears of a hard landing. In contrast, cryptocurrency exposure remains limited, with just 9% of managers holding stakes in digital assets. For advisors, these allocations suggest a preference for tangible hedges over speculative alternatives in current market conditions.
Taken together, the August data present a picture of cautious optimism layered over deep valuation skepticism. Managers are deploying capital selectively, maintaining a growth bias while rotating toward regions and asset classes that may offer relative value. Advisors should consider several key implications for client portfolios:
-
Manage U.S. Equity Exposure with Precision – While outright bearishness on U.S. stocks remains low, the record-high perception of overvaluation—especially in large-cap growth—calls for disciplined allocation. Advisors may want to evaluate tilts toward quality, profitability, and valuation metrics within domestic equity sleeves, and consider rebalancing away from excessive tech concentration.
-
Leverage Currency and Commodity Cycles – A weakening dollar environment has historically supported EM performance and commodity-linked assets. Advisors can explore opportunities in markets benefiting from this trend, while remaining mindful of the volatility inherent in EM currencies and equity markets.
-
Monitor China’s Economic Trajectory – The uptick in bullishness toward China is notable, but the market remains sensitive to both domestic policy shifts and international tensions. Advisors may position through broad EM exposure rather than concentrated China bets, unless client risk tolerance supports higher single-country allocations.
-
Maintain Tactical Flexibility – With cash levels near 4%, managers are signaling that they remain committed to staying invested. Advisors should ensure client portfolios retain the flexibility to pivot quickly as conditions evolve—whether in response to policy changes, earnings surprises, or macro shocks.
-
Diversify Hedging Strategies – The continued preference for gold suggests institutional investors still see value in traditional hedges. For clients seeking portfolio insurance, gold can be part of a broader risk management toolkit that may also include defensive equity sectors, inflation-linked bonds, or dynamic option strategies. Cryptocurrency, by contrast, remains a niche allocation for most professionals and should be approached with caution.
In the months ahead, the interplay between valuation concerns and risk-taking behavior will be a central theme. If the dollar continues to weaken, EM assets may see further inflows, while U.S. equities could face greater performance headwinds if earnings fail to justify elevated multiples. Advisors should prepare clients for potential volatility around these pivots, reinforcing the importance of diversification across geographies, asset classes, and risk factors.
The August survey ultimately reinforces a reality wealth managers know well: market sentiment is rarely uniform, and asset flows often reflect a blend of caution, conviction, and tactical positioning. While record numbers of managers see U.S. equities as overpriced, capital continues to find its way into the market—suggesting that in a world still awash with liquidity and opportunity costs for holding cash, even skeptical investors feel compelled to stay in the game.
For RIAs and wealth advisors, this environment demands a blend of macro awareness, valuation discipline, and client-specific tailoring. Navigating these crosscurrents effectively will mean not just identifying where sentiment is shifting, but understanding why—and positioning portfolios to capture upside while managing the inevitable risks that accompany it.
