Global fund managers remain firmly bullish on economic growth and artificial intelligence (AI)-related capital spending, but rising bond yields and US political uncertainty are emerging as key risks, according to Bank of America's September Global Fund Manager Survey.
The survey showed average cash allocations rising to 3.9% from 3.5% in August, indicating that excessive bullishness seen over the summer is beginning to moderate. BofA strategists said it would be safe to increase risk exposure once cash levels return to the 4-5% neutral zone.
Investors remain optimistic about the global economy. A net 8% expect global growth to accelerate further, while 55% foresee a “no landing” scenario, compared with 38% expecting a soft landing and just 2% anticipating a hard landing.
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Expectations for double-digit earnings-per-share growth over the next 12 months are at their highest since August 2021. However, a record 33% of investors believe companies are over-investing, highlighting concerns around the sustainability of the AI spending boom.
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Bond Market Risk Takes Centre Stage
The biggest shift in the September survey was in perceived market risks. “Disorderly rise in bond yields” emerged as the biggest tail risk, cited by 33% of respondents, up from 27% in August and overtaking the AI bubble.
Investors also expect a flatter yield curve for the first time since September 2022, while only 16% believe Treasury Secretary Scott Bessent's bond-buyback programme will reduce Treasury yields.
Sector Rotation Underway
Fund managers trimmed overweight positions in equities and commodities while maintaining a significant underweight in bonds. Within equities, September saw rotation towards healthcare, industrials and banks, while REITs and consumer staples faced selling pressure.
Global semiconductors remained the most crowded trade, cited by 53% of investors. Meanwhile, 42% identified AI hyperscaler capital expenditure as the most likely source of a potential credit event.
The survey points to a market where confidence in growth and AI remains high, but investors are increasingly building safeguards against bond-market and policy shocks.
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