Global Fund Manager Survey-The Crash in Cash

Summary of BofA December Global Fund Manager Survey Industry Overview - The survey reflects the sentiment of global fund managers regarding macroeconomic conditions, asset allocation, and investment strategies as of December 2025. Key Points Macro & Economic Outlook - Macro Optimism: The macro optimism is at its highest since August 2021, with 57% of respondents predicting a soft landing for the economy, 37% expecting no landing, and only 3% anticipating a hard landing [2][19] - Profit Expectations: Net profit expectations rose to 29%, the highest since August 2021, indicating a positive outlook on global profits [26] - Liquidity Conditions: Rated as the third best in the past 17 years, with 61% of investors rating liquidity conditions as positive, the highest since September 2021 [41][43] Asset Allocation Trends - Cash Levels: Cash levels dropped to a record low of 3.3%, down from 3.7%, indicating a strong shift towards risk assets [1][103] - Equity and Commodity Allocation: Allocation to equities rose to a net 42% overweight (OW), the highest since December 2024, while commodities reached a net 18% OW, the highest since September 2022 [16][55] - Sector Rotation: Significant rotation into US stocks, technology, and materials, while reducing exposure to bonds, healthcare, and staples [4][60] Investment Risks and Concerns - AI Bubble: Identified as the biggest tail risk by 38% of investors, with concerns about overinvestment in AI-related capital expenditures [31][29] - Credit Event Sources: 40% of investors believe private equity/private credit is the most likely source of a credit event, followed by AI hyperscaler capex at 29% [34][36] Crowded Trades - Most Crowded Trades: "Long Magnificent 7" remains the most crowded trade at 54%, followed by "Long Gold" at 29% [37][39] Future Expectations - Bond Yield Expectations: 38% of investors expect long-term interest rates to rise, the highest since April 2022 [45] - Yield Curve Steepening: 75% of investors anticipate a steepening yield curve in the next 12 months [48] Regional and Sector Allocations - US Equities: Net 6% overweight in US equities, the highest since February 2025 [145] - Underweight Sectors: Significant underweight positions in energy (26% UW) and consumer staples (20% UW) [56][172] Conclusion - The December survey indicates a strong bullish sentiment among fund managers, with significant shifts towards equities and commodities, while concerns about potential risks, particularly related to AI and credit events, remain prevalent. The overall outlook suggests a cautious optimism as investors navigate the current economic landscape.