The Only Reason to Be Bearish is There is No Reason to Be Bearish - BofA Fund Manager Survey

February 16, 2021 8:38 AM EST

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BofA Securities' latest Fund Manager Survey (FMS) shows there’s practically no reason to be bearish now.

“The only reason to be bearish is...there is no reason to be bearish,” Chief Investment Strategist at BofA Michael Hartnett writes in a note.

The data shows cash levels are down to 3.8% from the previous 3.9%, which is the lowest since March 2013 and just before Bernanke “taper tantrum”. This leads to the highest allocation to stocks & commodities since February 2011 with a record number of investors taking “higher-than-normal” risk.

“FMS shows cyclical consensus is “cyclical”...high exposure to commodities, EM, industrials, banks relative to past 10 years; but Jan wobble caused investors to top-up “safety of growth” exposure via tech, health care, US stocks,” Hartnett writes.

The vaccine rollout (28%), taper tantrum (25%), and inflation (24%) are seen as the three biggest “tail risks”. On the other hand, long tech (35%), long Bitcoin (27%) and short dollar (13%) are the most crowded trades at the moment.

“Bubble move and/or big inflation in 2021 best played via FMS laggards e.g. energy & UK stocks; conversely longs in EM, commodities, industrials most vulnerable to “peak profits” narrative; either way consumer staples a smart contrarian accumulator in H1,” he adds.

More than 90% of investors say we will see a stronger economy in 2021, with a majority (34%) saying it’s a V-shaped recovery vs 10% in the past. For the first time in a year, fund managers want CIO’s to “increase capex” rather than “improve balance sheets.”

Overall, the BofA Global FMS Cash Rule is issuing a sell signal as cash levels are below 4% while BofA Bull & Bear Indicator (7.7%) is still “Neutral,” although it is approaching the reading of 8.0%, when it will generate a sell signal.

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