Big money managers hoard cash, dump bonds as inflation fears mount
Cash levels hit 12-month high
Market expert on inflation: It’s a ‘Tickle Me Elmo economy’
Adviser Investments CIO Jim Lowell weighs in on markets, inflation, supply issues and consumers.
Big money managers are hoarding the most cash in a year amid concerns over inflation and slowing global growth, according to a survey conducted by Bank of America.
The average cash balance for respondents to Bank of America’s Global Fund Manager Survey was 4.7%, the highest since October 2020, as investors pulled cash from bonds, driving allocation to an all-time low. Bonds underperform in an environment of rising inflation.
The October survey was the "least bullish since Oct’20," wrote Michael Hartnett, chief investment strategist at Bank of America. A net 6% of respondents said global growth will weaken in the next 12 months.
The Charlotte, North Carolina-based lender surveyed 380 participants with $1.2 trillion in assets under management between Oct. 8 and Oct. 14.
"Boom" expectations slipped to 61% from 66%, while "stagflation" expectations rose 14 percentage points to 34%. The gap between "transitory" and "permanent" inflation narrowed to 20 percentage points from 41 percentage points in September.
A net 48% of respondents said inflation was the biggest "tail risk" to markets. Inflation or a bond market taper tantrum remained the biggest concern for an eighth straight month. Worries over the slowing Chinese economy (23%) and COVID (3%) rounded out the top three.
Survey respondents expect 1.1 rate hikes from the Federal Reserve in 2022. Forty-four percent think the Fed will raise rates once next year, while 24% see two rate hikes and another 24% predict none.
Long technology was deemed the most "crowded trade" by 35% of respondents, followed by Long ESG, Short China and Emerging Markets and Long Bitcoin.
CLICK HERE TO READ MORE ON FOX BUSINESS
Investors looking for contrarian plays should sell the U.S. and technology to protect against a "rate shock," and those worried about a "growth shock" should position long bonds, utilities, staples and short banks, energy and commodities, according to the survey.