Almost record low cash levels indicate investors remain supremely bullish

August's was the third most bullish Global Fund Manager Survey since 2022.

Fund managers are bullish - so much so that in the last four years, there have only been two occasions when they've been more confident, according to Bank of America's most recent survey published Tuesday.

Cash levels at 3.5% have rarely been this low since the turn of the millennium and the allocation to stocks is also a five-year high.

BofA Global FMS investor sentiment was very bullish in August

Why are fund managers, 180 of them responsible for managing more than half a trillion dollars of assets, so optimistic? Michael Hartnett, the chief equity strategist who compiles the report, lists the things they are not worried about: neither growth, nor rate hikes, nor AI capex nor U.S. politics seem to be affecting asset allocation at present.

Take growth, for instance: a record 56% of respondents do not expect any "landing" or slowdown in economic growth, while the survey also showed the highest number of managers anticipating double-digit earnings per share growth since August 2021.

When it comes to interest rates, almost three quarters of investors do not think that Fed Chairman Kevin Warsh will raise interest rates before the U.S. midterm elections in November. Only a third expect a hawkish tone from him at the Jackson Hole Economic Symposium later this month.

When polled about the prospects for markets in the event of the Democrats taking a clean sweep in the midterms, there's a split in consensus, but broadly speaking just over half of managers predict stocks would fall.

The "most crowded" trade is a closely followed feature of the Bank of America survey and while it's still semiconductors SOX which concern fund managers most, the percentage of those worried has dropped since the July shakeout in the sector, and declined from 83% to 52%. The possibility of an "AI bubble" is still an issue for some while in credit markets, the massive growth in hyperscaler capex is seen as the most likely source of disruption.

When it comes to asset allocation, fund managers still favor U.S. and emerging market equities EEM most of all. Given the geopolitical turbulence of 2026, their constructive approach to commodities, where supply chains remain fragile, should not be surprising.

FMS most OW global stocks, EM, tech vs most UW bonds, UK, staples

Hartnett always likes to highlight contrarian trades in his survey, not necessarily as recommendations so much, but simply to point out where sentiment and positioning might be weakest and therefore susceptible to reversal. Given the "Anything But Bonds" theme, Hartnett's strategy note has often explored in recent times, and the current deterioration in bond yields, buying fixed-income would definitely be a contrarian call at this juncture.

Likewise shorting commodities here would run counter to current consensus. In terms of sectoral pair trades that might catch investors wrong-footed, buying staples versus tech, U.K. equities (Z00) over U.S. equities SPX and discretionary consumer stocks over banks would all defy current market sentiment.

-Jules Rimmer