LONDON (Reuters) – Fund managers increased their cash allocations as expectations of higher inflation, taxation changes and a “taper tantrum” leave equities vulnerable to pullbacks, BofA’s April fund manager survey released on Tuesday found.
Though the majority of investors in the survey said equities were not in a bubble, BofA said positioning was peaking with a near-record 62% of investors “overweight” on stocks.
Unprecedented stimulus measures to tackle the COVID-19- induced recession have now sparked worries about inflation, prompting investors to raise their rate hike expectations.
Worries that the U.S. Federal Reserve would scale back – or “taper” – its quantitative easing programme was seen as the biggest risk among investors.
Discussions about a minimum global corporate tax rate and a rise in the corporate tax rate in the United States in the past few weeks have soured the outlook for equities.
Investors’ cash allocation rose to 4.1% last week versus 3.8% in February, the survey showed.
After soaring 82% from March 2020 lows and scaling $90 trillion in market capitalisation, world stocks are holding up near record highs.
Still, two-thirds of the 200 panellists with $553 billion in assets under management said U.S. equities were in a late-stage bull market. Only 7% think U.S. stocks were in a bubble.
Six out of ten investors surveyed by BofA now expect a rise short-term rates in the next 12 months, the highest since January 2019. But they expect a more than 10% pullback in stocks if U.S. 10-year Treasury yields hit above 2.1%.
The benchmark 10-year yield is now hovering near 1.70%, holding below a 14-month high of 1.776% reached on March 30.
(Reporting by Thyagaraju Adinarayan; Editing by Tommy Wilkes)