Fund managers turned overweight on UK stocks for the first time in seven years and cut exposure to tech stocks as rising inflation leaves growth stocks vulnerable to pullbacks, Bank of America’s May fund manager survey showed on Tuesday.
Unprecedented stimulus measures to tackle the pandemic-induced recession have now sparked worries about inflation, which featured in the BofA survey as the biggest tail risk for markets.
Last week, data showed U.S. consumer prices unexpectedly rose by the most in nearly 12 years in April, triggering worries that the Federal Reserve may have to raise rates sooner than it currently expects.
That in turn is a boon for UK stock indexes, which are heavy on stocks that do well in a rising rates environment, such as banks, miners and energy firms.
Allocation to UK stocks touched the highest level since March 2014, BofA’s survey of 215 fund managers with $625 billion in assets under management showed, also supported by the clearing of the Brexit fog and an economy gearing to reopen fully after a couple of strict COVID-19 lockdowns.
Britain formally exited the European Union last year, removing a source of uncertainty that lasted for years.
Tech stocks are particularly sensitive to rising rate expectations because their value rests heavily on future earnings, which are discounted more deeply when rates go up. Investors cut down overweight positions on technology stocks to a three-year low, according to BofA.
Elsewhere, long bitcoin topped the list of most crowded trades with 75% of the investors surveyed saying the most popular digital currency was in a “bubble”.
Bitcoin fell to a three-month low on Monday in a volatile session that saw investors selling and buying the digital currency after Tesla boss Elon Musk tweeted about the carmaker’s bitcoin holdings. read more
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