Walking the Talk?

Mike Zaccardi, 12:44 pm ET

BANK OF AMERICA’S monthly fund manager survey takes the pulse of portfolio managers around the world. The latest survey was released last week—and some of the results weren’t so rosy.

Despite a record-breaking quarter for corporate profits, which blew past analysts’ predictions, money managers have turned more bearish. Perhaps recent market volatility, especially among foreign stocks, has caused jitters. Also casting an ominous cloud is the Delta variant’s global spread. On top of that, some money managers see tech stock’s rich valuations as a sign that this investing theme is “overcrowded.” Finally, inflation and the Federal Reserve’s plans to taper bond purchases are seen as short-term risks.

To be sure, portfolio managers always have some worries. There’s never certainty about the financial markets’ short-term outlook—a reason all investors should take a long view.

In the Bank of America report, there’s a pair of data points I regularly check. First is the level of cash that portfolio managers have on hand. It ticked up to 4.2% of assets under management, but that’s on the low end for the past decade. Cash levels peaked near 6% in early 2016 and during 2020’s COVID-19 crash. Second, I’m interested in what respondents want corporations to do with their excess cash. When the focus is on capital spending and returning cash to shareholders, it’s a sign that portfolio managers’ appetite for risk is high. But when volatility strikes, suddenly portfolio managers want firms to shore up their balance sheets. Right now, fund managers prefer that executives engage in riskier uses for corporate cash.

I found it strange that sentiment questions in the survey had generally bearish responses, yet portfolio managers were still positioned aggressively. According to the report, expectations for global economic growth are at their lowest level since April 2020. At the same time, the percentage of money managers overweighted in stocks is well above the long-term average. Could that be a red flag after a summer lull in volatility?

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