Broker Check

Fund Managers Grow Increasingly Pessimistic

| July 02, 2019

The Bank of America Merrill Lynch Fund Manager Survey reported that professional mutual fund managers are the most bearish they have been since the financial crisis. The survey shows that 21% of fund managers are underweight global stocks meaning they hold, on average, 21% less in stocks than their benchmark.

The fund manager pessimism is largely a result of concerns about the escalation of the trade war and the chances of an economic recession within the next 12 months.

The average cash level of equity mutual funds has increased to 5.6% in June from 4.6% in May. 

This shows that fund managers are increasingly holding larger amounts of cash to reduce the overall risk profile of their portfolios. Fund managers that have a flexible mandate are also increasingly adding long-term US Government bonds as a safe-haven which may increase in value should long-term interest rates continue to decline.

The increased allocation to cash can also be viewed as a potential positive for the equity markets. Should fund manager fears subside they may seek to put their cash back to work quickly which could cause stock prices to surge to new highs.