Bank of America Global Fund Manager Survey (FMS) – December

Bank of America’s Global Fund Manager Survey (FMS) for December indicates a potential ‘sell’ signal for risk assets. Cash levels have decreased to a three-year low, while investor sentiment has shifted to a notably bullish stance.

The report highlights that the average cash allocation among fund managers has fallen to 3.9% of assets under management (AUM), activating BofA’s ‘FMS Cash Rule’ contrarian indicator.

According to this rule, cash allocations at or below 4% historically suggest a ‘sell signal’ for global equities. December marks the second instance of this in three months.

BofA strategists note that previous occurrences of such low cash levels, such as in early 2002 and February 2011, coincided with significant market peaks.

Since 2011, there have been 12 prior 'sell' signals, which recorded global equity (ACWI) returns of -2.4% one month after and -0.7% three months post signal activation. This analysis is led by strategist Michael Hartnett.

The note highlights a ‘super-bullish sentiment’ among fund managers, driven by optimism regarding US growth under anticipated ‘Trump 2.0’ policies and a Federal Reserve seen as likely to lower rates. Equity allocations have reached the highest levels since January 2022.

BofA observes that investors are engaging in a Q1 risk asset ‘overshoot’, favoring long positions in commodities, resources, and stocks from Europe or emerging markets. Simultaneously, they are hedging against unforeseen ‘hard landing’ scenarios by increasing their investments in cash, bonds, consumer staples, and short positions in US stocks, technology, and banks.

The survey also reveals record-high investments in US stocks and global banks, while European equities are experiencing their largest underweight since October 2022. Allocations to commodities have declined to their lowest level since mid-2017.