Inflation takes over from Covid as biggest tail risk for investors - BofA

Covid-19 is no longer seen as the biggest risk to equity markets, according to the latest Bank of America Fund Manager Survey, with inflation and taper tantrums now bigger concerns.

For the last 12 months and since it was declared a pandemic in March 2020, Covid-19 has been named the number 1 investor tail risk. However, according to the latest BofA survey - carried out between 5 and 11 March - inflation is now seen as the largest tail risk, with 93% of investors expecting higher inflation in the next 12 months, up 7% month-on-month and hitting an all-time high.

The survey also found that only 15% of investors think the US equity market is in a bubble, 25% believe it’s in an early-stage bull market and 55% a late-stage bull market.

Cash allocations were lifted from 3.8% to 4.0%, marking the first rise since July 2020. Meanwhile, investors’ allocation to commodities was at an all-time high, while hedge funds’ exposure to equities was the highest since June 2020.

BofA’s chief investment strategist Michael Hartnett said investor sentiment was "unambiguously bullish".

According to the survey, 48% of investors are saying it’s a V-shaped recovery, versus 10% in May 2020, while 91% of investors are expecting a stronger economy, which is the best economic outlook ever.