Fund managers have grown more bearish after several months of increased optimism as expectations of a credit crunch are causing a rising aversion to risk, according to the results of Bank of America's April Global Fund Manager Survey.
Of the 286 surveyed fund managers, which oversee a total of $728 billion in assets, a net 63% expect weaker global growth, up from 50% the month before, which was reflected in investors lowering their equity allocations to a net 29% underweight, down 2 percentage points from the month before.
Also reflecting their overall pessimism, bond allocations rocketed up to 10% overweight, up 9 percentage points from the month before.
Cash levels, meanwhile, remained at 5.5%, the same as the previous month. The survey noted this was the 17th consecutive month that survey respondents said their cash levels were above 5%, the longest streak since the early 2000s when managers kept their cash levels above 5% for 32 straight months during the dot-com bear market.
When asked to identify the biggest tail risk, 35% of managers identified a bank credit crunch and global recession as their primary concern. A month earlier, before the collapse of Silicon Valley Bank and the emergency purchase of Credit Suisse Bank by UBS, there was no mention of a credit crunch on the list of biggest tail risks.
Also high on the list of biggest tail risks was high inflation keeping central banks hawkish at 34%. In March, 40% of managers said inflation staying high was the biggest tail risk, while 15% cited hawkish central banks.
Also in the April survey, 16% said a systemic credit event is the biggest tail risk, up from 8% the previous month, and 11% said worsening geopolitics, down from 17% in March.
Also in the new survey, when asked for their most crowded current trades, 30% said long, big technology stocks; 18% said short, U.S. banks; 13%, long, China equities; 12% short, real estate investment trusts; 11% long, European equities; and 5% long, U.S. dollar.
Managers in general are the most bearish about real estate since the global financial crisis, according to the survey. When asked for the most likely source of a credit event, 48% said U.S. and European commercial real estate. Other responses were 25% U.S. shadow banking, 6% U.S. corporate debt, 4% each China real estate and U.S. Treasury debt downgrade, and 3% European sovereign debt.
The survey was conducted between April 6 and April 13.