The latest survey of fund managers and their concerns by the Bank of America (BofA) is that they are more worried now about an inflation spike rather than covid-19.
This is the first-time since February that fund managers feel the pandemic is not their number one priority.
The next 12 months is expected to see higher inflation by 93% of fund managers and an all-time high with a month-on-month 7% increase.
On the postive side, 91% of respondents expect a stronger UK economy.
48% of managers expect a V-shaped recovery (bouneced down and now on its way back up) which is a 10% rise from May last year, whilst 89% expect global profits to improve over the next 12 months.
Some fund managers expect a steeper Gilt/Bond yield curve as investors expect higher short-term gilt rates.
Managers have cut their tech exposure to a net overweight of 8%. Representing the lowest overweight position since January 2009. The last time investors were underweight since November 2008. Long tech is still the busiest trade by volume but is down from September 2020.
Finally, in the next 12 months, 52% of managers now think investing for value will outperform growth i.e. looking for stocks that are undervalued (e.g. hit by covid-19) such as airlines but will bounce back as global vaccination gathers pace.
According to the BofA survey, investors poured into cyclical stocks buying the safety of growth in February, with the high exposure to commodities, industrials, banks, discretionary and emerging markets relative to the past 10 years.
BofA described this as a huge change from a year ago where investors invested mostly in cash, healthcare, staples, and utilities.
We have been suggesting for 10 months now that inflation will be the only way for governments to devalue public sector 'covid' debt and buying cyclical stocks along side undervalued stocks are clearly attractive as we fight our way out of covid.