BofA Survey: Fund Managers Call Markets ‘Overvalued’

  • BofA (Bank of America) released its June fund manager survey. According to the survey, 78% of fund managers think that stock markets are overvalued.
  • Currently, the percentage of fund managers calling markets “overvalued” is the highest since 1998. Back then, the valuations were elevated due to the dot-com boom.

BofA fund manager survey

Notably, BofA conducts a monthly survey of over 200 fund managers. The survey used to be the Bank of America Merrill Lynch survey. Overall, the survey offers insight into what leading fund managers think. According to the June BofA survey, 78% of the fund managers said that stock markets are overvalued. That’s the highest percentage of fund managers calling stock markets overvalued since 1998 during the dot-com boom era.

US stock market crash

Most hedge fund managers said that US stock markets were overvalued in April and May. However, instead of the US stock market crash that they predicted, markets jumped higher. Some of the market crash proponents, including Paul Tudor Jones and Stanley Druckenmiller, ceded defeat to bulls. Meanwhile, the BofA survey showed that fund managers have gradually lowered their cash holdings.

BofA survey: Fund managers lower cash holdings

The June BofA survey showed that fund managers lowered their cash holdings to 4.7%. The cash holdings were 5.7% in May and 5.9% in April. Fund managers lowered their cash holdings by 100 basis points in a month—the highest since 2009. Currently, 49% of the fund managers see the second wave COVID-19 as the biggest tail risk—down from 52% in the May survey. On Monday, US stock markets crashed intraday amid fears of a second wave of coronavirus infections.

Bear market rally or a new bull market?

According to the June BofA fund manager survey, 53% of fund managers see the rally in stocks as a bear market rally, while 37% see it as a new bull market. Only 18% of the fund managers expect a V-shaped recovery in the economy. However, US stock markets have had a perfect V-shaped recovery.

BofA survey: Fund managers lower recession bets

The data showed that economic activity improved when the shutdowns eased. Meanwhile, 46% of fund managers expect a prolonged recession compared to 93% in April. The June BofA survey showed that over two-thirds of fund managers expect global equity returns to be between 0% and 5% annualized over the next decade.

According to BofA strategists Michael Hartnett and Shirley Wu, while Wall Street is past “peak pessimism,” the optimism in June was “fragile, neurotic, nowhere near dangerously bullish.”

Fund managers are less bullish on US stock markets

The June BofA survey showed that fund managers lowered their exposure to US equities at 22% overweight. However, they increased their allocation to Eurozone stocks to 7% overweight. Also, 72% of the surveyed fund managers said that US tech and growth stocks were the most overcrowded trade. US tech and growth stocks continued to show strength. They led the broader markets higher. The Nasdaq Composite Index (NASDAQ:QQQ) has risen 10.3% for the year, while the S&P 500 (NYSEARCA:SPY) has fallen 3.3%. The Dow Jones Index (NYSEARCA:DIA) has fallen 7.9% for the year.