Fund managers and investors are reporting high levels of pessimism about the global economy, as inflation, interest rates and recession expectations all rise.
Global fund managers have increased their cash exposure to levels not seen in over 20 years as a result, according to Bank of America’s latest Fund Manager Survey which questioned 293 managers with combined AUM of $800bn (£665bn).
Average cash levels are now sitting at 6.1 per cent.
Expectations of a recession are at 79 per cent, the report showed, and half of respondents said they wanted companies to shore up balance sheets instead of increasing capex or share buybacks, as their expectations for company profits sat at all-time lows.
Consensus is rising of an approaching recession
As a result of the poor outlook, fund managers have slashed equity allocations to their lowest since 2008, and their trades showed an anticipation of a rise in the US dollar as well as oil and commodity price rises.
The outlook for fixed income is also looking poor, with long-term rate expectations at three-year lows, with investors anticipating a “bull flattering” of the yield curve.
More than half of fund managers (58 per cent) said they are taking lower than normal levels of risk, surpassing the concern seen amid the global financial crash.
Fund investors are also reporting concerns about the future for growth, with Boring Money’s quarterly survey of 1,500 UK investors showing the lowest sentiment seen in two years.
Chief executive officer of Boring Money, Holly Mackay, said consumers are feeling more pessimistic about both the outlook for markets and their own personal finance situation.
“Asset managers should anticipate ongoing lower flows from retail investors, with sustainable funds offering a rare glimpse of resilience as other asset classes or types of investing fall from favour.”
Despite this bleak outlook, UK equities remain the most popular asset class, with 28 per cent of investors reporting intentions to increase their exposure in the next year.
However, investors are still pulling money from UK equity funds, with £1.2bn in redemptions recorded by the Investment Association in May.
sally.hickey@ft.com
