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Fund managers shrug off recession fears and pile into shares

Fund managers shrug off recession fears and pile into shares

Fund managers have been buying back into shares at the fastest pace in two years, dismissing fears of a global recession this year, according to the latest Bank of America Merrill Lynch fund manager survey.

The survey, which questioned over 200 global fund managers at the beginning of April, found a net 17% of fund managers were overweight equities, an increase of 14% month-on-month.

This marked the biggest jump in fund managers allocating to equities since December 2016, just after US president Donald Trump was elected to office. In comparison, the March survey saw the lowest allocation since July 2016.

Nearly three-quarters of fund managers said they only expected a global recession to start in the second half of 2020 or later.

Even more than that, 86%, disagreed that the yield on three-year US government debt, or treasuries, rising above that on 10-year treasuries for the first time since 2007 – otherwise known as yield curve ‘inversion’ – signalled an impending recession.

That inversion, often seen as a leading indicator of recession, took place last month for the first time since 2007.

UK equities remained fund managers’ least favoured region, with a net 28% underweight, after yet another Brexit delay was announced, extended the departure deadline to 31 October. But sentiment has modestly improved from a peak in bearishness in March 2018, when 41% of investors were underweight UK equities.

Two-thirds of investors expected a continued ‘low growth, low inflation’ environment, or ‘secular stagnation', the highest point in more than two years, with allocation to global bank stocks falling to their lowest level since September 2016.

‘Investors added a bit of cyclical risk this month but are still firmly positioned for secular stagnation,’ said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch. ‘They are long assets that outperform when growth and rates fall, like cash, emerging markets and utilities, while short assets that require higher growth and rates, such as equities, the eurozone and banks.’ 

A Sino-US trade war and a slowdown in China were both cited as investors' number one risk, with a fifth of fund managers noting one or the other as the primary possible headwind. This was followed by 18% of managers stating they were most concerned by central banks action on interest rates.

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