- U.S. stocks are the place to be, according to global fund managers, who are now overweight America for the first time in 15 months and see a very robust profit outlook.
- The fund managers, surveyed by Bank of America Merrill Lynch, are also buying energy, and their allocation to commodities is at an eight-year high.
- FAANG remains the most crowded trade for a fifth month.
- Trade issues are seen as the biggest tail risk.
Global fund managers poured money into U.S. equities, overweighting American stocks in June for the first time in 15 months, on a robust profit outlook.
Sixty-four percent of the fund managers surveyed this month by Bank of America Merrill Lynch said the U.S. has the most favorable profit outlook, now at a 17-year high. That compares with a net negative profit outlook for all other regions.
Commodities are also increasingly popular. Allocation to commodities hit a new eight-year high as oil prices gained. The allocation to energy is now at 17 percent overweight, a six-year high, and commodities in general are net 7 percent overweight, the highest since oil prices were more than $100 in April 2012.
Trade issues are seen as the biggest tail risk for markets, a dominant worry this year. Second is concern that a major central bank will make a policy mistake, and third is concern that a euro or emerging market debt crisis will derail markets.
Fund managers favor U.S. stocks but they also still love FAANG: Facebook, Amazon, Apple, Netflix and Google-parent Alphabet, and BAT — Baidu, Alibaba and Tencent. Both FAANG and BAT are seen as the most crowded trade for a fifth month. But for the first time since the sell-off in February, technology has overtaken banks as the bigger overweight.
Global investors continue to prefer technology, banks and energy while avoiding staples, telecoms and utilities.
The allocation to U.S. equities rose to net 1 percent overweight, as investors reduced holdings in euro zone and emerging markets equities. Cash balances slipped to 4.8 percent in June from 4.9 percent in May, but that is still well above the 10-year average of 4.5 percent.
A growing concern of the managers has been corporate indebtedness. A record 42 percent of fund managers said global companies are overleveraged. That exceeds the previous peak of 32 percent in 2008, and is up slightly from last month. The number of managers who would like companies to improve balance sheets hit an eight-year high last month.
BofAML said 235 fund managers participated in the monthly survey in June.