The BofA Global Research monthly fund manager survey for February released Tuesday shows investor risk appetite is running strong despite artificial-intelligence-induced volatility in stocks and wild swings in gold and silver.
The survey found the combined allocation of fund managers to overweight positions in equities and commodities stood at a net 76%, the highest since January 2022 (see chart above).
- BofA analysts noted allocation to equities & commodities, a measure of demand for risky assets, has been correlated with the ISM manufacturing PMI. Lately, however, the two have diverged in a big way as manufacturing PMIs have lagged.
Meanwhile, fund managers are bearish on the dollar. The underweight position in the currency was more than 2.5 standard deviations below the mean, the survey found (see chart below).
A weaker dollar is seen as supportive for commodities priced in the currency, making them less expensive to users of other currencies.
- Watch out: But the dollar’s recent weakness combined with positioning carries a danger, warned Ole Hansen, head of commodity strategy at Saxo Bank, in a Tuesday note: “The dollar’s weakness in recent months has supported hard assets, but positioning has become increasingly one-sided. Bank of America’s latest FX sentiment survey shows fund managers holding their most bearish dollar stance in a decade. Such consensus does not guarantee a reversal, but it raises the risk of a counter-trend rebound.”