Investor sentiment remains cautious, and a consensus is positioned for bad news because of the COVID-19 pandemic, macroeconomics and the upcoming election, said results of Bank of America Merrill Lynch's July Global Fund Manager Survey.
According to the survey, 71% of fund managers still think the stock market is "overvalued," while a record net 74% of fund managers believe that long U.S. technology stocks is the most "crowded trade," the highest reading in the survey's history.
While 72% of survey respondents said they expect stronger global growth, the highest since January 2014, the conviction in the strength and duration of any recovery is low, with only 14% believing a recovery will be V-shaped, vs. 44% expecting a U-shaped recovery and 30% W-shaped.
Cash levels among fund managers reached 4.9% in July, up from 4.7% in June.
Asset allocators remain long health care, U.S., technology, cash and bonds, while being short energy, U.K., banks and industrials. Meanwhile, allocation to commodities rose 5 percentage points to a net 12% overweight, the highest since July 2011.
Allocation to eurozone equities increased 9 percentage points to a net 16% overweight, the largest increase in net weighting of any region in July.
In a post COVID-19 world, survey respondents say the biggest structural shifts will be supply chain reshoring (67%), followed by protectionism (46%) and Modern Monetary Theory (45%). Meanwhile, 54% of fund managers think the U.S. will benefit the most from reshoring, or domestic production.
A second wave of COVID-19 tops the list of tail-risk concerns for fund managers, with 52% of respondents ranking it at No.1. The U.S. election (15%), a credit event (11%) and populist policies to end inequality (8%) round out the top four tail risks.