Cash levels in investment portfolios have hit the lowest since just before the so-called taper tantrum of 2013, according to Bank of America’s February fund manager survey, which also showed investors to be overwhelmingly bullish on the economic outlook.
“The only reason to be bearish is … there is no reason to be bearish,” Michael Hartnett, BofA’s chief investment strategist, told clients, who have the highest equity and commodity allocations in a decade.
A net 91% of them expect a stronger economy, the best ever reading in BofA’s survey published on Tuesday, which covered 225 fund managers with $645 billion in assets under management.
Investors showed they had the capacity to increase risk, taking their cash levels down to 3.8%, the lowest since March 2013, just before the U.S. Federal Reserve sparked a market tantrum by signalling its intent to wind down, or taper, the bond-buying programme it launched during the 2008 crisis.
However, investors hear echoes of the 2013 situation, and see another taper tantrum as the second biggest “tail risk” after delays in the rollout of coronavirus vaccines.
Despite these issues simmering in the background, and the huge gains across markets, BofA’s survey, conducted between Feb. 5 and 11, found only 13% of its participants concerned about a U.S. equity market bubble. About 53% said U.S. equity markets were in a late-stage bull market while 27% saw it in the early stages.
Notably, a net 25% of the investors surveyed said they were taking “higher-than-normal” risks — the highest percentage ever. “Long tech” was the “most crowded trade”, followed by “long bitcoin” and “short U.S. dollar”.
Wall Street’s “fear gauge”, the CBOE Volatility Index, dipped below 20 on Friday for the first time in almost a year.
“As volatility breaks down, this provides just one more of the many reasons for stocks to rally,” said Saxo Bank market strategist Eleanor Creagh. “With the USD and volatility on the decline, asset managers will gross up positioning.”
The buying spree prompted the MSCI all-country world stocks index to register its 12th consecutive day of gains, its longest rising streak in 17 years.
In contrast, a survey by Deutsche Bank showed investors agreeing that there were many bubbles in financial markets, with bitcoin and U.S. tech stocks topping the bubble talk.
The survey did, however, suggest “taper tantrum” fears were receding. Some 26% foresaw such an event this year, down from a third in January.