BofA fund manager survey in February: Investors are fleeing tech stocks – 30 percent expect a bear market in 2022

BofA survey: net underweight in technology sector of at least 9 percent
Cash holdings rising – optimism especially in cyclical sectors
Restrictive central banks, inflation and asset bubbles posed major risks for the markets

Investors are fleeing tech stocks

BofA Securities’ monthly fund manager survey has revealed that investors have increased their underweight to technology positions to the largest in more than 15 years, Reuters reports. The survey, conducted Feb. 4-10, suggests a net underweight in the technology sector of at least 9 percent, according to MarketWatch, the lowest since August 2006. Nervous investors are keeping their bets on growth stocks that will lead the rally of the S&P 500 over the past decade has been rapidly reduced. While long positions in the US technology sector remained the top trade in the survey, conviction was down 28 percent in February compared to 39 percent in the previous month. And while investors have fled technology stocks, some believe there is still too much money in the sector, reports MarketWatch.

The flight from tech stocks came as central bankers prepare to fight inflation, and central bank tightening remains the biggest risk for global markets in 2022. Higher interest rates hurt pricier tech stocks, which are valued on future growth expectations, according to Bloomberg. Most of the responses from participants, however, came ahead of US inflation data on Feb. 10, when annual inflation hit a new 40-year high. That record high has prompted investors to price in about seven Federal Reserve rate hikes in 2022, according to Bloomberg.

Cash holdings rise – optimism about stocks wanes

The BofA survey of 363 investors with more than $1 trillion in assets also found that cash holdings rose 5.3 percent, the highest since May 2020. Cash was voted the preferred asset class with 38 percent net allocation, Bloomberg reports.

According to BofA strategists, led by Michael Hartnett, the survey also showed that overall equity allocation had fallen sharply. While in January more than half of their customers were still optimistic about shares, in February it was just under a third of customers. FMS (Fund Manager Survey) investors are particularly bullish on cyclical sectors, with “long” bets on banks, cash, commodities, European stocks and energy and healthcare stocks – while avoiding bonds, the US and technology .

Biggest risks for the markets

While the Bank of America survey ranked dovish central banks as the top market tail risk, followed by inflation and asset bubbles, according to Reuters, Russia-Ukraine tensions were named the fifth-biggest “tail risk” in the survey ” for the markets. Still, only about 30 percent of investors in the stock markets expect a bear market in 2022. As MarketWatch reports, US corporate earnings and the economy are likely to continue to grow, so the 5,000 point level in the S&P 500 is not very far-fetched.

Recession was the fourth top tail risk in the survey, according to Yahoo Finance. Recession expectations were unchanged from the January report.

According to the BofA survey, fund managers at least believe that a “recession fear” could be brewing in the market this year, reflecting a month or two of heightened geopolitical risks, elevated inflation and rising interest rates. “The best way to play out fears of an impending recession is to go long bonds and short commodities,” Yahoo Finance quoted Bank of America’s latest fund manager survey as saying. On the positive side, however, fund managers are not expecting a technical recession this year – 12 percent of respondents see it as a recession – but rather were concerned that one might hit the markets.

“Bottom line: investors are bearish (eg, cash levels jumped 5.3%), but not extremely bearish (eg, investors are long cyclical stocks vs. bonds),” summarized the report’s author, Michael Hartnett.

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