Global Fund Managers Changed Their Views After Trump Got Elected. Here's How

The latest Global Fund Manager Survey from BofA, released on November 12, shows that global fund managers anticipate an increased probability of the U.S. not landing, but also an increase of inflation risks. Additionally, fund managers have developed a stronger preference for high-yield bonds and U.S. stocks, especially small-cap stocks. The Bull & Bear Indicator has risen but has not reached a state of extreme optimism.

The survey shows that the net proportion of fund managers expecting the U.S. economy to maintain positive growth leaped from -22% in October to 28% after Trump's election. The share of those anticipating a "soft landing" decreased from 76% to 55%, while the "no landing" probability jumped from 14% to 33%. The likelihood of "hard landing" remained unchanged at 8%.

The survey also shows that the BofA Sentiment Index rose from 5.5 in October to 5.9, indicating that the market has become more optimistic but has not reached extreme values yet.

However, there are still many concerns in the market. The tail risk that fund managers are most concerned about has shifted from "U.S. recession + geopolitical conflict" to "accelerating inflation." In comparison, the biggest concerns in the market around the time of Trump's first term included the "Trump election" and the "US-China Trade War."

Apparently, Trump's potential second term will confront significantly more intricate inflationary challenges than the period of 2016- 2017. During his initial term, inflation was kept in check as the U.S. was recovering from a balance sheet recession. But now, ongoing geopolitical tensions in Eastern Europe and the Middle East remain unresolved; U.S. citizens face increased loan interest rates; and the Treasury Department carries substantial debt. Furthermore, Trump’s policies on tax reductions might exacerbate the government deficit, thereby intensifying risks related to currency devaluation and inflation.

1. The survey shows that global fund managers have become more aggressive in their positions. Before the November elections, global fund managers maintained a cash level of 4.3%; after the election, respondents reported a decrease in cash levels to 4.0%.

2. The proportion of “Long Gold” has decreased. Still, 28% of respondents favor "Long Gold."

3. “Long Magnificent 7” remains the most crowded trade at 50% (up from 43% in October). However, the proportion of those expecting small-cap stocks to outperform has surged; the proportion of being long on U.S. stocks as opposed to stocks from other countries has also increased. Regarding equity indices, post-election respondents expect the Russell 2000 (35%) to be the best performer, following by the Nasdaq index (28%) and MSCI Emerging Markets (15%).

Source: Bank of America