Volatility in in August markets led to something of a reset in markets, with high-conviction trades being tested by rapid drawdowns. Zooming out though, fund managers have a relatively consistent view of a soft landing scenario.
"Core optimism on soft landing (76%) & US large cap growth stocks [is] unbowed," Bank of America analysts write. "Just that investors now think Fed needs to cut harder to guarantee no recession."
Cash levels rose to 4.3% from 4.1% but are still at the low end of historical norms.
There was certainly some deteriorating in the survey with the percentage of managers expecting slowing global growth falling rapidly, though still above levels from earlier this year.
55% of fund managers also said monetary policy was too restrictive, which was the most since October 2008.
In general, surveys like this are contrarian indicators.
Crowded trades:
1) Bonds
Despite the recent drop, expectations for lower bonds yields are above 50%. The last time they were this high was December 2023 and that marked the bottom. What followed was a rise in 30-year yields to 4.8% from 3.94%. Allocations to bonds were still low at a net 8% overweight but that's a rapid change from 9% net underweight a month ago.
2) China
One area that's notable is China, which has been been buried deep in the dog house. Optimism on it is at the lowest since May 2022.
3) Mag 7
Asked about the most-crowded trade, most fund managers continued to point to Mag 7 but some shifted to 'short China' or 'long 2s'.
4) Long healthcare, short REITs
As for internal positioning, the net overweight positions were longest in healthcare, tech, equities and the US. Shorts were crowded in REITs, discretionary, materials and Japan.
5) Equities still crowded
Despite the recent drop in stocks, managers are still historically long equities.
6) BofA contrarian ideas
From Bank of America: "long commodities vs stocks, long RoW vs US equities, long small cap value vs large cap growth; long consumer discretionary vs healthcare."
