‘Crash In Bond Markets’ Now #1 Worry For Fund Managers

Listen, one thing you need to understand about BofAML is that they really like to conduct surveys.

So does Citi.

Unfortunately, when BofAML releases the results of their surveys, they don’t include fun recipes for “Grandma’s whiskey cornflake cookies” (big shoutout to Laura’s grandma) like Citi does.

Whiskey cookies or no whiskey cookies, BofAML’s fund manager polls are worth keeping track of, if for no other reason than to observe the extent to which allocators are still piling into the very assets they claim are overvalued.

But wait!

Things changed this month – because while 38% of fund managers told BofAML that “long Nasdaq” is the most crowded trade on the planet, it’s no longer the biggest Overweight, as investors now favor financials over tech for the first time this year…


Here are the takeaways from the July survey:

July FMS takeaways

  • Bottom line: 1. cash levels still too high for “big top”; 2. too many see Fed as likely negative catalyst while inflection lower in growth/EPS estimates being ignored; 3. energy>banks, US>Eurozone, commodities>cash (Exhibit 1) = best contrarian trades
  • July FMS cash levels dip from 5.0% to 4.9%; but cash remains well-above 10-year average of 4.5% & allocators very OW the asset class…cash too high for “big top”
  • 3 most crowded trades: long Nasdaq (38%), long US/EU credit (15%), long Eurozone equities (12%)…means ECB most likely central bank to spark global “risk-off”
  • 3 biggest tail risks: crash in bond markets (28%), Fed/ECB policy mistake (27%), China credit tightening (15%)…central banks seen as much bigger risk (the “red herring”) than EPS, and yet…
  • …clear inflection point lower in FMS growth/EPS expectations; 38% expect stronger growth vs. 62% in Jan; 41% expect stronger profits vs. 58% in Jan
  • July rotations: investors bought Japan, healthcare, materials, commodities; investors sold tech (68% say US/global internet stocks “expensive”), UK, discretionary, industrials
  • July positions: big longs in banks (knocks off tech as #1 global sector OW), Eurozone, EM; big shorts in UK, energy & US stocks (last time UW in US stocks larger was Jan’08)



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