Global fund managers might say they are rotating but not chasing stocks after the massive rally from March lows, but at the same time, they say they are “paranoid tech” that too many of them are chasing the narrowest group on Wall Street – the five or six mega techs.
According to the latest Bank of America’s fund manager survey (covering investments valued at $US646 billion), 80% of the 234 respondents to the September survey reckon the Megatech sector is too crowded – in fact, they say its “the most crowded trade” ever in the market.
And there are some notes of caution amid this high tech concentration in popular stock market indexes like the Nasdaq 100 and the S&P 500 – 22% of investors said they fear that the biggest “tail risk” for the market is a tech bubble, only behind 30% of respondents saying a second wave of COVID-19 is the biggest risk.
Just 10 stocks in the S&P 500 accounted for more than 50% of August’s 7.2% return, BofA highlighted in a separate note last week. The top five stocks responsible for those returns were Apple, Microsoft, Amazon, Facebook, and Salesforce.
The survey found that cash levels held by fund managers rose to 4.8% of their portfolios in September from 4.6% in August and a net 18% are overweight equities which is not particularly high over the history of the survey (in fact it’s more a sign of continuing caution).
At the same time, investors allocated more cash to industrials, small capitalisation stocks, and value at the expense of technology, healthcare and large caps.
The fund managers still preferring the US over European, UK, and emerging markets. The caution about the UK is being driven by the renewed concerns about the impact of Brexit and the current hardline approach from the government.
In fact, a net 35% are underweight UK shares which is the worst showing since March 2018.
Banks and energy stocks also are still unloved, the survey finds.
For the first time since February, more investors say the global economy is in an early cycle phase rather than recession.
Despite the fears about tech being too crowded (ie too many investors chasing too few stocks) and its sheer size as a percentage of the overall market, a majority of investors say we are now in a new bull market – 58% said “It’s a bull market,” a solid increase from August’s reading of 46% for the same question.
But half that number – 29% – of survey respondents believe the market is experiencing a “bear market rally,” down from last month’s reading of 35%.
On the macro side, 84% of respondents expect higher global growth, and 40% expect the global economy to get “a lot stronger,” which is the higher reading ever, according to Bank of America.
The survey was conducted between September 3 and 10.
None mention why the markets now find themselves – the huge spending and support packages from governments and central banks – especially the Fed, ECB, and Bank of Japan. Without that help, the comments and tone of the survey’s responses would be very, very different.
