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BofA Survey: Fund Managers Warn on US Tech Stocks


Jul. 24 2020, Updated 11:24 a.m. ET

  • Yesterday, the BofA (Bank of America) released its July fund manager survey. The monthly survey is based on responses from over 200 global fund managers.
  • The July survey showed that most fund managers see US tech and growth stocks as the most crowded trade. The sharp rally in tech stocks has helped US stock markets recoup their first-quarter losses.
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US tech and growth stocks have risen sharply this year and have catapulted the Nasdaq Composite (NASDAQ:QQQ) to record highs. The BofA July fund manager survey, released yesterday, is indicative of this sharp rise. There is little denying that some tech stocks —specifically, Netflix, Amazon, Shopify, and Zoom Video Communications—have benefited from the shutdowns and changed consumer behavior. However, their valuation, in some cases, is getting too high for comfort, and is reminiscent of what we saw in the dot-com bubble in the 1990s. 

The electric vehicle stocks is another space that has seen a sharp rally this year, with Tesla and NIO stocks up significantly. Previously, I’ve discussed how the rise in electric vehicle stocks looks like a fear-of-missing-out trade.

The BofA survey showed that long gold is the second-most-crowded trade. Gold has outperformed other trades this year amid the economic uncertainty.

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BofA survey: Fund managers increase cash positions

The July BofA survey showed that fund managers increased their cash holdings from 4.7% to 4.9%. In April, fund managers were holding 5.9% of their holdings in cash. They recommend selling when the S&P 500 (NYSEARCA:SPY) is above 3,250, and buying below 2,950. The BofA July fund manager survey showed that only 14% of respondents expect a V-shaped recovery in the economy. In the June survey, 18% of respondents said that they expect a V-shaped recovery.

Where are fund managers putting their money?

The BofA survey showed that fund managers have increased their allocation to commodities to 5%, the highest allocation since July 2011. Fund managers are short on UK banks, industrials, and energy. The energy sector has been among the worst performer this year, as global energy prices have crashed.

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BofA survey: A second wave is the biggest risk

In the BofA July fund manager survey, 52% of respondents see a second wave of infections as the biggest risk to markets, up from 49% in June. Fund managers also see the upcoming US election as a risk, with the possibility of a Joe Biden victory making some investors apprehensive. In the July survey, 31% of respondents reported they are reducing risk in their portfolio in the run-up to the November election. However, 34% do not plan to take any action.

As for US tech and growth stocks, markets have been willing to pay a hefty premium for growth. However, the traditional definition of GARP (growth at a reasonable price) has been redefined. The July BofA survey also signals caution over the soaring valuation of US tech and growth stocks.


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