Investor sentiment remains bullish as COVID-19 vaccinations begin, according to Bank of America's December Global Fund Manager Survey, with 7 in 10 managers expecting the global economy to improve in the first half of 2021.
When asked when the COVID-19 vaccine will start positively impacting the economy, 42% of surveyed fund managers said it would begin in the second quarter, while 28% said the first quarter and 19% said the third quarter.
A net 89% of fund managers surveyed expect stronger growth in 2021, while a record 87% expect higher long-term yields.
COVID-19 continues to be the biggest tail risk, with 30% of respondents putting it at the top of their list this month, but that's11 percentage points less than November due to vaccine expectations. The other top tail risks are fears of inflation (24%) and fiscal policy drag (18%).
Although 2020 was dominated by the global recession sparked by the global COVID-19 outbreak, managers' recovery expectations surpassed previous recessions both in terms of speed and magnitude, survey results showed.
Seventy percent of fund managers said the global economy is in an early cycle phase, the highest percentage reported since January 2010. Meanwhile, only 12% said it is in a recession.
Thirty-four percent of fund managers believe in a W-shaped recovery, 29% a U-shaped recovery and 26% a V-shaped one.
Cash levels among surveyed money managers fell to 4% from 4.1%, making investors underweight cash for the first time since May 2013, indicative of an early stage recovery like recoveries after the global financial crisis and the dot-com bubble.
A record net 76% of investors said they're expecting a steeper yield curve in 2021, higher than the 2008 Lehman Brothers bankruptcy, the Federal Reserve "taper tantrum" in 2013 and the U.S. election in 2016.
Bank of America surveyed 190 fund managers overseeing a total of $534 billion in assets.