Money managers remain bullish about the global economy, just significantly less so than last month, according to Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
The latest survey reveals that a net 18% of managers expect global growth to improve over the next year, down from 36% last month yet still above 2019 lows. Meanwhile, inflation expectations dropped 17 percentage points from last month to a net 40% of survey participants expecting a higher global consumer price index in the next 12 months.
When asked what would increase inflation expectations, 26% said modern monetary theory (an unconventional macroeconomic view introduced in the early 1990s), while 24% selected a G-7 commitment to infrastructure spending.
The survey of 221 money managers representing a total of $676 billion in assets under management was conducted Feb. 6-13.
The survey also revealed that 67% of fund managers expect below-trend growth and inflation over the next year, up 5 percentage points from January. Growth stocks are expected to outperform value stocks over the next 12 months, according to net 6% of survey respondents. This represents the biggest jump in favor of growth since December 2014 and the highest overall reading since July 2008.
More than half of those surveyed said long U.S. technology/growth stocks is the most crowded trade (51%), followed by long U.S. Treasuries (17%) and long investment-grade corporate bonds (13%).
Cash levels fell to 4% from 4.2%, the lowest level since March 2013. The allocation to global equities increased 1 percentage point to a net 33% overweight, a 20-month high. The allocation to U.S. equities rose 16 percentage points to a net 19% overweight, the highest since September 2008.
Allocation to emerging markets equities rose 3 percentage points to a net 36% overweight, the highest since March 2019, making emerging markets equities the most preferred region for the fourth consecutive month.
A net 54% of those surveyed said the U.S. dollar is overvalued, the second highest level since 2002.
The outcome of the 2020 U.S. presidential election remains the No. 1 tail risk among managers, at 26%, followed by the bond bubble popping (22%) and the coronavirus (21%). A trade war with China is no longer among managers' top concerns.
"Investor sentiment is less bullish than last month and shows full capitulation into deflation assets," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "We stay irrationally bullish."