Fund managers say inflation 'transitory', banks biggest 'overweight' - BofA

Most fund managers around the world continued to believe that the recent acceleration in price pressures in the States would prove transitory, placing their trust in the Federal Reserve's ability to "peacefully" draw back on its policy easing, the results of a closely-followed survey revealed.

According to Bank of America's monthly survey, 72% fund of managers said inflation was not permanent and 68% did not expect an economic recession before 2024.

So while expectations for growth and companies' earnings per share might have peaked the stock market was only transitioning from early to mid-cycle and any correction in share prices would be limited to no greater than 10%, they said.

So while a so-called 'taper tantrum' was considered the biggest risk when the US central bank signalled that it would start 'tapering' its bond purchases - likely in August or September - 'longs' in commodities, cyclicals and financials remained the most favoured trades.

Going the other way, fund managers reduced their exposure to defensives yet again with their 'underweight' stance towards utilities at its lowest since February 2017.

By sectors, banks were the biggest 'overweight'.

In parallel, their cash levels reduced from 4.1% to 3.9%.

Expectations for a steeper Treasury yield curve meanwhile were at their lowest ebb since August 2020 with allocations to bonds at a three-year low.