Fund Managers Push Stock Allocations to 5-Year High, BofA Survey Shows

Global fund managers pushed equity allocations to a net 56 percent overweight, the highest since November 2021, while cash fell to 3.5 percent of assets.

"Positioning continues to recommend investors retreat or rotate within risk assets rather than reload," Michael Hartnett, chief investment strategist at Bank of America, said in the report.

The survey of 180 fund managers managing $525 billion, conducted Aug. 7-13, was the third-most bullish reading since 2022. Cash at 3.5 percent is the sixth-lowest since the survey began in 1998 and sits below the 4 percent threshold that triggers BofA's contrarian sell signal. The bank's Bull & Bear Indicator stands at 9.3, above the 8.0 level that historically flags a sell.

The bullish consensus leaves little room for disappointment. A record 56 percent of managers expect a "no landing" scenario, 72 percent see no Federal Reserve rate hike before the November midterms, and 71 percent do not expect an AI hyperscaler to cut capital spending this year. With positioning stretched, any miss on those expectations could trigger a sharp rotation out of crowded trades.

The Crowded Trade Is AI — and So Is the Biggest Risk

Long global semiconductors remains the most crowded trade, cited by 53 percent of respondents, though that is down sharply from a record 82 percent in July. The trade is most commonly expressed through the VanEck Semiconductor ETF (SMH) or the iShares Semiconductor ETF (SOXX).

The contradiction runs through the survey: 32 percent of managers identify an AI bubble as the biggest tail risk, while 38 percent say AI hyperscaler capital spending is the most likely source of a systemic credit event. Yet 71 percent do not expect any hyperscaler to cut capital spending this year, and 58 percent do not expect AI to disrupt labor markets before 2028.

Rotation Into Risk, Out of Defensives

Positioning still leans hard into risk. Technology allocation rose to a net 30 percent overweight, the most since May, and banks matched it at 30 percent. Energy underweights shrank to 3 percent from 20 percent, while U.S. equity exposure reached a net 27 percent overweight, the highest since December 2024.

Gold was seen as undervalued by a net 16 percent of respondents, the most since March 2023. The survey's contrarian trades run directly against the crowd: long bonds against short commodities, long consumer staples against short technology, long consumer discretionary against short banks, and long U.K. equities against short U.S. equities.

Fed Chair Kevin Warsh speaks at the Jackson Hole symposium Aug. 27-29. Managers expect a neutral tone from him, at 53 percent, while 31 percent brace for hawkish and just 7 percent for dovish.

The survey suggests a market that has already answered every question in front of it — and that is precisely what worries the contrarians.

This article is for informational purposes only and does not constitute investment advice.