Global fund managers remain bearish

Stocks may have surged from March lows, but investors remain wary of the recovery and are keeping plenty of cash on hand, according to the latest fund manager survey from Bank of America Merrill Lynch (BofAML). 

The study, which polled 223 respondents managing around $650 bn, finds a broadly pessimistic mood: only 10 percent predict a V-shaped economic recovery and 68 percent think we are in a bear market rally.

Underlining investor concerns, average cash levels stand at 5.7 percent, far above the 10-year average of 4.7 percent. Cash holdings are down slightly on last month’s survey, however, when they hit 5.9 percent.

After plunging sharply in March, global stock markets have recovered strongly, especially in the US, where the S&P 500 is now only 13 percent off its record high reached in February. 

While surveys, such as that by BofAML, point to investor fear that the market has risen too far too fast, the rally is continuing for now. This week both the S&P 500 and FTSE 100 have climbed more than 3.5 percent.

The biggest tail risk for investors, according to BofAML’s research, is a second wave of Covid-19, which is cited by 52 percent of respondents. The next biggest risks are viewed as permanently high unemployment (15 percent) and the break-up of the European Union (11 percent).  

Fund managers also gave their thoughts on how Covid-19 will affect businesses over the long term. More than two thirds (68 percent) of respondents say the biggest structural shift after the pandemic will be supply chain reshoring, followed by protectionism (44 percent) and higher taxation (42 percent). 

Turning to capital allocation, a net 73 percent of investors want companies ‘to spend cash on improving their balance sheets, slightly down from last month but still above March 2009 levels,’ notes the research. By contrast, 15 percent called for more capital expenditure and just 7 percent asked for increased dividends or buybacks. 

The survey was undertaken between May 7 and May 14.