Global Fund Manager Survey

The Rotating Top

Key takeaways

• Rotating Top: investors "rotating" not "chasing" stocks following epic 51% rally from March lows

• The vaccine's the thing: 41% say C-19 vaccine most likely trigger for higher bond yields, investors say Q1'21 likely timing

• FMS contrarian trades: UK, energy, banks longs (on 10Y >1%); US tech, healthcare, discretionary shorts (on vaccine)

BofA September Global Fund Manager Survey

Bottom line: FMS shows investors "rotating" not "chasing" stocks following epic 51% rally from March lows; BofA Bull & Bear Indicator unchanged at 3.9… positioning implies SPX 3300-3600 range holds, and cyclical rotation still in early phase; Sept Zeitgeist…

• "It's a bull market": 58% of investors say new bull market has begun (25% in May).

• "No longer a recession": 1st time since Feb more investors (49%) say macro in early-cycle phase than recession (37%); net 84% say global growth up next 12 months.

• "It's not escape velocity": 61% predict U- or W-shaped recovery vs 20% say V-shaped; 51% still prefer balance sheet discipline vs 37% want increased capex (was 13% in Apr); shows FMS investor doubt on sustainability of upturn.

• "Dry powder": FMS cash levels rose from 4.6% to 4.8% (greed <4%, fear >5%).

• "We're paranoid tech": long US tech most "crowded trade" of all-time (80%); "tech bubble" now #2 FMS tail risk after COVID-19 "second wave"; 1-month return reversal occurs after "peak crowded trade" in 14/22 months in past decade (Table 1).

• "Let's cyclically rotate": FMS rotation continues on macro; tech, healthcare, large cap longs trimmed, industrials @ highest overweight since Jan'18, flows to small cap & value up; but no regional rotation (US>EU/UK/EM) and banks/energy shunned.

• "The vaccine's the thing": 41% say credible COVID-19 vaccine most likely trigger for higher bond yields, followed by inflation (37%); investors say vaccine announcement most likely Q1'21; only 11% think 10Y UST yields will break out from 50-100bps range by year-end; and note 4 in 5 investors say flip in US Senate will be risk-off.

• "Contrarian trades": relative to history (Z-score) and Sept FMS flows UK, energy, banks most contrarian longs (trigger is 10Y UST yield>1%); US tech, healthcare, discretionary most contrarian shorts (trigger is vaccine) - Chart 1.