BofA poll finds 'Magnificent 7' tops crowded trades despite concerns over lofty US equity valuations
A record 91 percent of global fund managers view US equities as overvalued, yet many continue to pile into large-cap technology names, according to Bank of America’s (BofA) August fund manager survey reported by Bloomberg.
The poll, conducted from July 31 to August 7 among 169 participants managing US$413bn in assets, found that 45 percent of respondents named ‘long Magnificent 7’—including companies such as Nvidia and Microsoft—as the most crowded trade.
As per Reuters, these stocks rebounded sharply from an April tariff-driven selloff on the back of strong earnings, marking their return to the top spot for the first time since March.
Despite concerns over valuations, the survey showed investor sentiment improved to its most bullish level in six months.
Bloomberg reported that 68 percent expect a soft landing for the global economy over the next year, while 22 percent foresee no landing and only 5 percent predict a hard landing.
Allocations to global equities reached their highest level since February, with a net 14 percent overweight, Reuters noted, although this remains well below the net 49 percent overweight reported in December.
Bloomberg added that a net 16 percent of respondents are still underweight US equities despite record highs driven by better-than-expected earnings and expectations that the Federal Reserve could lower interest rates as growth slows.
BofA strategist Michael Hartnett said the probability of a hard landing is now seen as the lowest since January.
However, he cautioned that the rally risks overheating into a bubble if monetary policy and financial regulations ease further.
According to Bloomberg, the August survey showed cash levels at 3.9 percent of total assets, a level BofA associates with a sell signal.
Data from Goldman Sachs indicated hedge funds sold a net US$1bn in US stocks last week, while long-only investors bought US$4bn.
The poll also revealed that 49 percent of participants view emerging market equities as undervalued, the highest since February 2024.
Inflation expectations rose to a three-month high, with a net 18 percent expecting a higher global consumer price index reading.
Bloomberg said that the top tail risks cited were a trade war triggering a global recession (29 percent), inflation preventing Fed rate cuts (27 percent), a disorderly rise in bond yields (20 percent), an artificial intelligence equity bubble (14 percent), and dollar debasement (6 percent).
Other crowded trades included short dollar (23 percent) and long gold (12 percent).
On monetary policy, 54 percent of respondents said they expect the next Federal Reserve chair to implement quantitative easing or yield curve control to manage US debt.
Current chair Jerome Powell is scheduled to step down in May.
