Low risk appetite sees managers shift to defensives
Fund managers made a big move away from cyclicals in September and into bond-sensitive sectors like utilities in September.
According to the monthly Global Fund Manager Survey from Bank of America, which surveyed 243 panellists with US$666 billion in assets under management, there was a “big shift” between the two sectors.
Allocations to utilities are at their highest overweight since 2008, while defensive assets are also popular, at the expense of allocations to tech, industrials and resources. Exposure to commodities is at a seven-year low.
“September saw a rotation into defensive sectors and out of cyclical sectors, fund managers’ relative net overweight in defensives (utilities and staples) versus cyclicals (energy, materials and industrials) is now the highest since May 2020. Investors are now the most overweight utilities since December 2008 at a net 8 per cent overweight,” the firm said in its monthly report.
“Investors are the most underweight energy since December 2020 (net 17 per cent underweight) and most underweight to materials since June 2020 (net 17 per cent underweight).”
Bond allocations are a net 11 per cent overweight, up 3 percentage points from August, and investors are at the most overweight since December 2023.
Overall global sentiment improved for the first time since June, rising from 3.6 to 3.9 on the expectation of a cut by the Federal Reserve. This measure is based on cash levels, equity allocations and economic growth expectations. Cash fell slightly lower from 4.3 per cent to 4.2 per cent.
However, risk appetite is at an 11-month low, and a net 23 per cent said they are taking lower than normal risk levels in their portfolios. Global growth expectations remain pessimistic, with a net 42 per cent expecting a weaker economy in the next 12 months and 50 per cent expecting to see below-trend growth and above-trend inflation resulting in stagflation.
A US recession is seen as the biggest tail risk, same as in August, for 40 per cent of respondents, followed by geopolitical conflict at 19 per cent and an acceleration in inflation which rose from 12 per cent to 18 per cent.
While a US recession is the biggest threat, over half of respondents said they are not expecting a recession in the US economy to occur in the next 18 months.
AUTHOR
Laura Dew
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