Bofa: Fund managers sour on stocks have nowhere else to go

The market faces a peculiar anomaly: fund managers are quickly souring on global growth and earnings amid a flurry of risks, but they refuse to give up on stocks, according to the latest Bank of America survey.

“Rare fund manager survey disconnect between asset prices and fundamentals is growing,” Bofa strategists led by Michael Hartnett said in a note on Tuesday. “Growth expectations are saying equity allocations should fall, but risk taking is telling the story that investors are ignoring the macro.”

The outlook for global growth and profits in September slumped to the lowest in more than a year, according to the survey conducted September 3 to September 9. However, investor allocation to equities dropped only slightly to a net 50 per cent overweight and the share of respondents taking higher-than-normal risks rose to 9 per cent. Bonds remained unpopular with a net 69 per cent underweight, Bofa said.

The reason for such market positioning? Bofa strategists say that a drop in macro-economic optimism is good news for equities, as it signals that lower rates will stay in place for longer, leading to TINA (There Is No Alternative) for stocks amid a lack of appetite for bonds.