Portfolio

Fund managers most 'bearish' in June since the financial crisis, BofA-ML says

By Alexander Bueso

Date: Tuesday 18 Jun 2019

Fund managers most 'bearish' in June since the financial crisis, BofA-ML says

(Sharecast News) - Fund managers were at their most "bearish" in June since the last financial crisis, amid concerns over war and recession, the possibility that monetary policy might have lost its potency to foster growth and "low strike prices for policy puts", the results of a widely-followed survey showed.
According to Bank of America-Merrill Lynch's monthly global Fund Managers' Survey, which was conducted between 7-13 June, on the back of those factors fund managers raised their cash holdings, as a proportion of their assets, from 4.6% in May to 5.6%, for the largest one-month move since the 2011 debt ceiling crisis in the US.

In parallel, they slashed their equity holdings by the second most on record with the largest reduction having taken place in August 2011.

How much more did they prefer bonds relative to stocks? By the most since May 2009, BofA-ML said.

Regarding the so-called 'strike price' for Fed action, fund managers believed a drop in the S&P 500 below 2,430 points would suffice to trigger an interest rate cut.

And at 2,350, the US President would also cut, they believed, a trade deal that is.

Mirroring the above, over the span of eight months, the percentage of survey participants expecting a higher Fed funds rate to anticipating a lower one had flipped from 89% to -10% - the least since 2008.

But the risk that easier monetary policy had lost its ability to stoke animal spirits was now seen as the second biggest 'tail risk'.

US Treasury debt was seen as the most "crowded" trade, followed by the US dollar.

To take note of, BofA-ML's Bull&Bear indicator slipped from 2.5 in May to 2.3 for June and was very close to the threshold for a "contrarian" buy signal, at 2.0, and would have fallen below that level were it not for "resilient credit market inflows & prices".

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