COVID-19 Asset Allocation | Did 68% Fund Managers get it wrong?

Asset Allocation Investment Ideas if you think most of the Fund Managers got it wrong

Asset Allocation: some interesting findings came from Bank of America that published the May 2020 Fund Manager Survey where they interviewed close to 200 Investors about current allocations and views. Some of the readings are quite extreme in the historical context. 

This is also another reason to stick with the Passive Index Funds approach (that you may want to protect in case of shorter investment horizon)

Summary of Findings

Here are some Contrarian trade ideas from Bank of America based on their Survey – note that these are pretty aggressive/risky based on current environment: 

  • Sectors: Investors looking to play upside: short US tech, long
    energy-short healthcare
  • Geography: long Europe-short US; Fund managers are long U.S. equities and short euro-zone stocks, the poll shows.
  • Value vs. Growth Stocks: Investors looking to play structural
    reshoring theme…long value-short growth, long small cap-short large cap.

68% of Managers believe this is a bear market rally

asset allocation bank of america U W shaped recovery bear market rally bull market ETF finxed income

The most crowded trades are US Tech, Growth and US Treasuries

asset allocation most crowded trade bank of america

The most feared tail risk is Coronavirus Second Wave

Bank of America notes:
•  The dominant concerns of investors since 2011 have been Eurozone debt &
potential breakdown; Chinese growth; populism, quantitative tightening & trade
wars; now global coronavirus.
•  Now, Coronavirus 2nd wave dominates with 52% of FMS investors saying it is the top “tail
risk”; #2 Permanently high unemployment, #3 Break-up of the European Union, #4
Systemic credit event.

Net 4% of Investors believe Gold is Cheap

net 4% of FMS investors believe gold is cheap with weaker USD and QE FED

Read our take on the relative value of Gold in this market

READ  Investing for Financial Independence? Pay attention to Key 12 Asset class returns

US Equities are preferred to European ones to the highest degree since the European Sovereign Crisis in 2011

Investors are Underweight Energy, Industrials and Materials - Value Stocks are net sold at this stage

asset allocation equity sectors positioning vs history bank of america

Cash is at highest levels in portfolios since 2016

fms cash balance elvated levels - coronavirus - bank of america survey - may 2020

Bloomberg also noted that the latest BofA survey showed a marginal  reduction in cash levels to 5.7%, which is still well above the 10-year average of 4.7%, while bond allocation jumped to the highest since the 2009 financial crisis. Exposure to equities in May rose 10 percentage points to a net 16% underweight after hitting the lowest level since 2009 last month, according to BofA. 

About Banker on Wheels 27 Articles
Ex Portfolio Manager and Institutional Advisor that witnessed first hand the 2008 GFC and the 2011 European Debt Crisis working for the most prestigious names in the financial industry. Currently on a bike around the world trip in a touring / backpacking mode and cycled close to 15,000 kms over the past year.
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