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An increasing number of global fund managers believe that the S&P 500 will outperform in 2021, according to Bank of America’s Global Fund Manager Survey (FMS). Now, 34% of survey participants believe that S&P 500 could be the best investment for 2021, dethroning emerging markets that were the most favoured trade till last month. So far this year, the S&P 500 has jumped 12.5% while emerging markets such as India and Brazil are largely flat year-to-date.
In the latest BofA FMS, apart from S&P 500 and emerging markets, investors believe oil to be the third-best placed asset to outperform in 2021. However, the optimism over oil seems to be fading away as only 14% of investors believe the commodity to be the best asset for the year, down 11% since the last survey. These are followed by Bitcoin, gold and 3-month treasury bills. The conviction for US equities, overall is on the rise, according to the FMS. Meanwhile, optimism for emerging markets has seen a pullback.
Among US equities, technology stocks seem to be getting back in action. “FMS “cyclical rotation” continued in April but investors also back to favourite trade of tech. Banks have now risen into the “rising optimism” quadrant while tech has gotten less pessimistic,” the BofA survey said. Fund managers still say that long tech is now again the most crowded trade.
However, in the large-cap and smallcap debate, 24% of FMS participants continue to think that smallcap stocks could have an edge over large caps in the next 12 months. Meanwhile, a record 53% of FMS investors think value trade will outperform growth over the next year.
In terms of risk for investors ahead, the pandemic has taken a backseat again. Investors see a bond tantrum and inflation as the biggest concerns surrounding the market. This is for the second straight month that investors have not listed the covid-19 pandemic as their biggest worry. But, FMS does not believe that rates at 1.5% would cause an equity correction. “On average, FMS investors believe that the 10-year Treasury yield at 2.3% makes bonds attractive relative to stocks,” they said. Investors are keeping an eye on a move in yields from 1.5% to 2% is critical as 47% of investors think 2% is the level of reckoning in the 10-year Treasury that will cause a 10% correction in stocks.
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