Institutional investors no longer view the COVID-19 pandemic as the No. 1 tail risk, according to the latest Bank of America (BofA) survey of global fund managers, an important gauge of sentiment on Wall Street.
Since COVID-19 became a global pandemic a year ago, the virus has dominated the rankings as the top tail risk by fund managers. For the first time since February 2020, COVID-19 is no longer in the top spot.
These days, investors consider the biggest tail risks to be higher than expected inflation (37%) and a “tantrum” in the bond market (35%) followed by the COVID-19 vaccine rollout and a bubble on Wall Street. A net 93% of fund managers expect higher inflation in the next 12 months, up 7% from the prior month’s survey and an all-time high, the survey found.
When looking at the survey results, Bank of America Securities chief investment strategist Michael Hartnett described investor sentiment as “unambiguously bullish.”
The survey, which polled 220 investors with $630 billion in assets under management between March 5 and 11, showed the average cash balance ticked up to 4.0% from 3.8%, net exposure for the hedge funds to equities is the highest since June 2020, and hedge fund allocation to commodities is at a record high.
According to the survey, 48% of the fund managers expect the global economy to deliver a V-shaped recovery, compared to only 10% in the May 2020 survey, another bullish viewpoint. A net 91% of the investors expect a stronger economy, which BofA points out is a record. A net 89% expect global profits to improve in the next year, the highest ever since the survey began.
When it comes to the U.S. stock market, 55% of investors say it’s a late-stage bull market, while 25% believe it’s an early-stage bull market. Only 15% of the fund managers believe it’s a bubble.
The fund managers still view long tech at 34% as the most crowded traded followed by Bitcoin (24%), ESG (15%), and long global cyclicals (8%).
Elsewhere, more than half of the fund managers, a record 52%, expect value to beat growth over the next 12 months.