The pain trade for money managers is still a rally in stocks that would catch them flatfooted, according to the latest survey by BofA Securities.
The June Global Fund Manager Survey of 285 panelists with $764B in assets under management found that respondents are still overall Underweight stocks (NYSEARCA:SPY) (QQQ) (DIA) (IWM) (IWB), although they are long tech (XLK) (XLY) (XLC).
Fund managers are also long investment-grade bonds (LQD) by the most they've been in eight years. Cash levels (VMFXX) (SPAXX) are down to 5.1%, the lowest since January 2022, but exposure to commodities (DBC) is down to a three-year low.
On a macro level managers are expecting the start of a "soft recession," punting the start of Fed cuts to Q4/Q1. Inflation expectations have fallen to a 28-year low. A net 87% of FMS investors expect lower global CPI in the next 12 months, up 3 percentage points month-over-month.
A "broad measure of FMS sentiment, based on cash positions, equity allocations, and economic growth expectations ...remains stubbornly low," strategist Michael Hartnett wrote. And "AI 'baby bubble,' FOMO, technical and so on can lift this, but fundamentally FMS asset allocators saying we need (a) meaningful downward surprise to rates, and/or (a) meaningful upward surprise to growth (no recession)."
When asked about potential widespread adoption of AI, 40% of respondents said it would increase profits. Just 2% said it would increase jobs, while 14% it would boost both and 29% said neither.
Long Big Tech is by far considered the most crowded trade at 55%, followed by short China stocks (MCHI) and long Japan stocks (EWJ). Rounding out the list is short U.S. dollar (DXY) (UDN), long Treasury bills (SGOV) and short U.S. banks (KBE) (IAT).
Among the biggest tail risks, high inflation keeping central banks hawkish regained the top spot from a bank credit crunch and global recession. Worse geopolitics remained in third.
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This data comes from MediaIntel.Asia's Media Intelligence and Media Monitoring Platform.