Global Fund Manager Survey: The Reopening Trade

Key takeaways 

 

•         Most bullish 2020 FMS: cash down to 4% ('sell' signal) as vaccine hope induces 'buy the reopening' trade; B&B up to 6.7

•         Vaccine impact expected in Q2'21; risk-on AA continues to increase, big rotation to value, EM, discr., commodities, banks

•         We say sell the vaccine; FMS contrarian trades: long cash-short stocks, long $-short EM, long energy/staples-short tech/indus

 

 

BofA December Global FMS top takeaways

Dec FMS: investor sentiment bullish as vaccine hopes induce strong 'buy the reopening' trade; bulls adding exposure in consumer, commodities, EM (60% say EM best performer in '21); equity 'barbell' strategies all the rage; bears note cash levels fall to 4.0%, triggering an FMS Cash Rule 'sell signal'; BofA Bull & Bear Indicator up to 6.7.

 

On vaccine: asked when COVID-19 vaccine will start positively impacting economy, 42% of investors replied Q2'21, 28% said Q1'21, 19% said Q3'21. 

On cash & risk: asset allocators underweight cash first time since May'13; cash level down to 4.0% triggering FMS Cash Rule 'sell signal' (back-tested 1-month S&P500 return = -3.2% - see Global Investment Strategy: Rules & Tools, 12 Nov 2020); COVID-19 as #1 tail risk down from 41% to 30%, but fears of inflation (24%) & fiscal policy drag (18%) rising. 

 

On macro & AA: net 89% expect stronger growth in '21; record 87% expect higher long-term yields; asked what corporations should do with cash investors split between improve balance sheet (44%) & increase capex (42%) as recession fear ends; bullish macro outlook… allocation to equity & commodity net overweight highest since Feb'11. 

 

On equities: highest allocation to EM since Nov'10… but investors still OW US & EU; jump in allocation to consumer discretionary, industrials (highest since Apr'14), banks (first OW since Jan'20)… but tech remains largest OW; reopening rotation zeal best expressed via record 31% of investors long small cap vs large cap. 

 

On crowded trades: #1 long tech (52%), #2 short US$ (17%), #3 long Bitcoin (15%).

Dec FMS contrarian trades: we say sell the vaccine 1Q21; contrarian AA trades are long cash-short stocks, long US$-short EM; contrarian equity trades are long energy/staples-short tech/industrials.