BofA Fund Manager Survey: 72% Says Inflation 'Transitory', 63% Expect Fed to Signal Taper Aug/Sept, 'Long Commodities' Now the Most Crowded Trade

June 17, 2021 8:13 AM EDT

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Michael Hartnett, the Chief Investment Strategist at BofA Securities, shares key insights from the bank’s latest Fund Manager Survey (FMS).

Investors are still positioned for permanent growth as nearly three out of four respondents expect inflation to be transitory. On the other hand, 23% say inflation is permanent.

“The May FMS indicates that higher growth-higher inflation (76%) has continued to reach new all-time highs,” Hartnett comments in a note before adding that net 75% of FMS investors expect a stronger economy.

“FMS shows growth & EPS expectations have peaked but investors say investment cycle transitioning from early to mid-cycle (68% don’t expect recession until 2024 at earliest).”

63% of respondents expect Fed to signal taper Aug/Sept with expectations for steeper yield curve lowest since August last year. Here, 38% of investors expect the Fed to signal tapering at Jackson Hole while 25% of investors mentioned the September FOMC meeting.

“The June FMS shows that investors have now bought back into Tech up from 11% to 22%.

FMS investor positioning relative to history is very tilted toward cyclicals such as Eurozone, industrials, materials, while defensives exposure has been cut again (UW in Utilities largest since Feb’17).”

Moreover, FMS outlines inflation and taper tantrum (both 30%) as the biggest risks. 47% of investors see a likely 10% correction in the next six months.

“Assuming “transitory inflation” consensus correct, “peak” in growth & profits expectations means investment cycle simply transitioning from early-cycle to mid-cycle 48% of FMS investors think the economy is mid-cycle now surpassing early-cycle (34%).

Other takeaways are that US infrastructure hopes have dipped to $1.7 trillion from $1.9 trillion. “Long Commodities” is now the most crowded trade after surpassing “Long Bitcoin.” Here, over four of five investors still see Bitcoin trading in a bubble.

“Prior “peaks” in crowded trades (tech Sep’20 & Sep’18, US Treasuries Mar’20, US dollar Jan’17 & Feb’15) were associated with relative tops,” Hartnett concludes.

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