Investor optimism has climbed to its third-highest level since 2022, according to Bank of America’s August Global Fund Manager Survey, with portfolio cash holdings approaching historic lows and allocations to equities reaching their strongest level in nearly five years.
Cash declined to 3.5% of assets under management in August from 3.6% in July, representing the sixth-lowest reading since the survey began in 1998. BofA’s Global FMS Cash Rule, which is designed as a contrarian indicator, therefore remains on “sell,” as the signal is activated whenever cash allocations fall to 4.0% or below.
At the same time, global equity exposure increased to a net 56% overweight, its highest level since November 2021. Fund managers have now maintained an overweight position in equities for 14 consecutive months.
Confidence in the economic outlook has also strengthened significantly. A record 56% of respondents anticipate a “no landing” scenario, while 43% expect a “boom” outcome, the highest proportion since February 2022.
“Consensus conviction is no macro landing, no Fed hike, no AI capex cut, no DEM sweep, no bears,” BofA strategists led by Michael Hartnett said in a note.
“Positioning continues to recommend investors retreat or rotate within risk assets rather than reload,” they added.
Expectations surrounding Federal Reserve policy have become increasingly relaxed. Some 72% of surveyed fund managers do not expect the Fed to raise interest rates before the November midterm elections, an increase from July.
Investors are more divided over how Fed Chair Kevin Warsh will approach the upcoming Jackson Hole symposium. A majority of 53% expect his tone to be neutral, while 31% anticipate a hawkish stance and only 7% expect a dovish message.
Risk appetite remains strong despite lingering concerns surrounding artificial intelligence. A long position in global semiconductor stocks remains the survey’s most crowded trade, selected by 53% of respondents. However, that figure has fallen substantially from 82% in July.
An AI bubble continues to rank as the largest tail risk, cited by 32% of fund managers. Meanwhile, 38% believe capital expenditure by AI hyperscalers represents the most likely trigger for a systemic credit event.
Despite those concerns, investors are not expecting an immediate reduction in AI investment. Some 71% believe no hyperscaler will cut capital expenditure this year, while 58% do not anticipate significant AI disruption to labour markets before 2028.
Portfolio positioning shifted towards technology, banks and energy during August, while exposure to industrials and healthcare was reduced. Allocations to U.S. equities climbed to a net 27% overweight, their highest since December 2024, while emerging-market exposure also increased.
Gold has meanwhile become increasingly attractive on valuation grounds. A net 16% of respondents now consider the precious metal undervalued, the strongest such reading since March 2023.
Against an increasingly bullish consensus, BofA identified several contrarian trades for August. These include favouring bonds over commodities, Consumer Staples over Technology, Consumer Discretionary over banks, and U.K. equities over U.S. stocks.