Fund managers shun tech stocks on fears of rising rates, lowest allocation to sector since 2006

Playing it safe ahead of the US Federal Reserve’s policy tightening, global fund managers avoided tech stocks, Bank of America’s Global Fund Manager Survey showed.

Playing it safe ahead of the US Federal Reserve’s policy tightening, global fund managers avoided tech stocks, Bank of America’s Global Fund Manager Survey showed. Fund managers now have the lowest allocation to tech stocks since 2006. Investors are watching for the start of the rate hike cycle by the US Federal Reserve and other central banks that is expected to begin this year. The survey also showed that investors are also underweight emerging markets and bonds, as well as technology stocks, all of which are sensitive to interest rate hikes.

Investors are underweight tech stocks

“Investors remain cyclical i.e. banks, materials, commodities relative to history, but have increased their defensiveness while underweighting assets that are vulnerable to interest rate hikes. interest – bonds, technology, emerging markets,” BofA said. The most overweight position taken by fund managers is in banks, followed by commodities, healthcare and energy. We can see that more and more investments have moved away from technology stocks and into energy.

Bearish but not too bearish

Bearish sentiment among fund managers is also indicated by cash levels. “FMS cash increased 5.3% (down from 5.0%) as investors turned more cautious/bearish,” the survey said. This is the highest level of cash held by fund managers since May 2020. Still, investors would not be extremely bearish. Among respondents to BofA’s survey, only 30% of investors expect a bearish stock market in 2022, while 66% do not. Although the allocation to the technology sector is the lowest since 2006, trading in Long Tech Stocks remains the most crowded, followed by short US Treasuries. The BofA survey showed that 40% of FMS investors believe emerging market equities will deliver the best returns in 2022.

A warlike central bank on the lookout

Amid anticipation of higher rates, the biggest tail risk perceived by fund managers right now is from hawkish central banks, followed by inflation and asset bubbles. 7% of respondents consider the Russian-Ukrainian conflict as an extreme risk, which places it in fifth position. With this, for the second consecutive FMS, hawkish central banks have taken the position of greatest tail risk. FMS investors now expect 4 rate hikes by the US Federal Reserve in 2022.

The US Federal Reserve rate hike has now become the biggest tail risk to inflation, which is now near its 40-year high. However, only 39% of survey respondents think inflation is permanent while 52% think it is transitory. US inflation is currently at 7.5%.

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