Stock market bullishness has climbed to its highest point of the year with investors slashing cash holdings and rotating into small caps and emerging markets, according to the latest global fund manager survey from Bank of America (BofA).
Confidence is so high that it is close to ‘full bull,’ say BofA analysts, a level that could indicate it's time to sell the vaccine rally.
The research, which polled 190 investors managing around $526 bn, took place between November 6 and November 12. It covers the period when Pfizer announced the world’s first effective Covid-19 vaccine, sending shares soaring.
Prior to the vaccine announcement, markets were already buoyant thanks to Joe Biden’s projected win in the US presidential election and the likelihood of a split US Congress, limiting the chances of tax rises or new regulation.
Average cash levels fell to 4.1 percent in November, a drop from 4.4 percent last month and below the 4.2 percent recorded prior to the Covid-19 outbreak in January, according to the survey. Over the last seven months, cash holdings have declined by 1.8 percentage points – a record fall.
The proportion of investors calling on companies to prioritize the balance sheet when using free cash flow dropped considerably, but it remains the top choice, backed by 47 percent of respondents.
Meanwhile, 38 percent of investors now say cash should first be spent on capital expenditure, a rise of 10 percentage points from October. ‘Escape velocity would be signaled by... capex intentions surpassing ‘improve balance sheets’,’ note the BofA analysts.
Looking at changes to asset allocations, the survey finds the biggest rotation into small caps, followed by emerging markets and equities. Staples, bonds and cash are the three biggest losers over the last month.
The study also considers current versus historic weightings. It finds that healthcare ‘remains the number one preferred sector’ while energy companies, despite making a comeback over the last month, are still the most ‘underweight relative to history’.