The Covid-19 pandemic continues to prey on the minds of fund managers, but it is being offset by hopes around a rapid distribution of newly created vaccines, which are inducing a strong “buy the reopening” trade.

At 30%, the coronavirus remains the biggest tail risk in the December BofA Global Fund Manager Survey released on Tuesday (December 15), but worries about it have fallen 11 percentage points since the November survey. 

“2020 was a year utterly dominated by Covid-19 which caused the quickest economic and financial market collapse of all time. However, just half a year later, recovery expectations have also surpassed prior recessions in both speed and magnitude,” the report concluded.

The relief from those that responded to the survey was palpable. Optimism, based on an above-trend growth and low inflation, even surpasses that after the 2007-2008 global financial Crisis (GFC) and, in a move familiar to those who observed the recovery after the dotcom bubble burst in 2002 and the GFC, a net percentage of respondents to the survey are underweight cash for the first time since May 2013.

There might be a debate about the nature of the recovery (champions of a W-shaped, a U-shaped or a V-shaped recovery were fairly evenly split), but they did agree that the recovery was imminent.

The majority of fund manager survey investors (42%) said that they expected the vaccine to impact the economy positively by May next year. Only 28% said that they expected this to happen in the first quarter, while fewer than a fifth (19%) said that they were looking to the third quarter.

TIME FOR EMERGING MARKETS TO SHINE

While fund manager pessimism continues to increase towards the US and consensus on the US dollar becomes extremely bearish – in fact, with the exception of January this year, it is at its lowest level since September 2007 – investors are becoming more enthusiastic about the outlook for emerging markets.

In a 10-percentage point jump month-on-month, 60% of respondents now believe that emerging markets will outperform next year.

The asset class that is being favoured is equities with investor optimism on stocks at its highest level since January 2018.

Equity allocations rose five percentage points month-on-month to a net 51% overweight. Drilling into those allocations, those to US equities fell eight percentage points to a net 15% overweight while allocation to emerging market equities increased 19 percentage points to a net 55% overweight.

Equities is joined as a favoured asset class by commodities where allocations jumped 11 percentage points to a net 18% overweight. This is its highest level since April 2011.

Asset classes that investors are steering clear of include bonds which saw allocations fall six percentage points to a net 56% underweight and its lowest level since March 2018; cash, which fell eight percentage points to a net 1% underweight, the lowest level since May 2013; and allocations to real estate which fell four percentage points to a net 6% underweight.