Fund managers know what the best performing asset class will be in 2020.
Spoiler alert: It will be stocks.
Or so says the collected wisdom of the 178 respondents (representing $574 billion in AUM) who participated in the November edition of BofA’s closely-watched global fund manager survey which, as noted on Tuesday, has that “FOMO” feel to it.
As you can see, 52% say equities will be the top performer in 2020, which is in keeping with recently ebullient sentiment that’s driven stocks to new record highs in the US, and pushed benchmarks into overbought territory even in recession-hit locales.
The risk-on move has been accompanied by a sharp drop in cash levels, documented in the first linked post above. If you missed that on Tuesday, the chart is below.
Perhaps the most amusing bit from the November survey comes courtesy of the juxtaposition between Exhibit 7 above and the “most crowded trade” chart.
As the bank’s Michael Hartnett notes, fixed income came in last in the “what will be the best performing asset” contest, “despite long US Treasuries being the most crowded trade from Jun-Oct’19”.
That’s a testament to how quickly the tide can turn, but perhaps even more notable is that “Long US Tech and Growth” now tops the most crowded trade list. Of course, Tech and Growth have, to some extent, become an extension of the “duration infatuation”, along with defensives, min vol., and other bond proxies.
Given the tight correlation, that trade (i.e., “Long Tech/Growth”, and the bubbles in min vol. and other defensives) will likely unwind too in the event bonds do in fact underperform going forward.
That, in turn, raises questions about whether Cyclicals and Value (i.e., things that would benefit from a continued rotation away from bond proxies) are really ready to take the proverbial baton when it comes to leading stocks higher in 2020.