Fund managers are entering 2025 with the most bullish sentiment since August 2021, helped by rising expectations for global growth and rotating cash into equities.
According to the monthly Global Fund Manager Survey from Bank of America (BOA), which surveyed 204 panellists with US$518 billion in assets under management, fund manager sentiment is the highest in over three years.
Overall sentiment was 7.0, up significantly from 5.2 in November, and is based on cash levels, equity allocations, and economic growth expectations. This was the largest monthly rise since June 2020.
“The December fund manager survey shows super-bullish sentiment with record low allocation to cash, record-high allocation to US stocks, three-year high in global risk appetite driven by Trump 2.0 US growth optimism and compliant rate-cutting Fed,” it said.
Demonstrating this optimism, cash levels fell from 4.3 per cent in November to 3.9 per cent in December, which BOA said is the lowest level since June 2021 and the largest monthly decrease in five years.
BOA said similar large falls in cash holdings in January 2002 and February 2011 had coincided with big tops in risk assets.
Instead, respondents are rotating into equities with equity allocations up 15 percentage points month on month to a net 49 per cent overweight. On the other hand, bond allocations are sitting at net 15 per cent underweight.
Allocations to US equities, in particular, surged by 24 percentage points to a net 36 per cent overweight. The overweight, which is the highest on record, is attributed to investors being positioned for a US inflation boom on the prospects of pro-growth policies announced by the Donald Trump administration.
Some 30 per cent of respondents said they expected US equities to be the best-performing asset class in 2025 as they are optimistic on Trump’s policy agenda of tax cuts and deregulation that they think will boost the profits of US companies.
Trade is overwhelmingly seen as the area most likely to be impacted by the Trump administration, cited by 64 per cent of fund manager respondents followed by 13 per cent who cited immigration.
Over half of respondents believe there will be no US recession in the next 18 months, but a global recession triggered by a trade war is the biggest tail risk at 37 per cent. However, unusually, this was tied in first place with another 37 per cent of respondents saying the biggest tail risk for them is the risk of the Federal Reserve hiking interest rates in response to inflation.
