Global fund managers moved toward a more cautious stance in March, according to Bank of America’s latest Global Fund Manager Survey (FMS), but their positioning has not reached the deep bearish extremes historically associated with market capitulation.
The survey recorded a material deterioration in sentiment as fresh concerns about geopolitical tensions and inflation replaced the more optimistic tone of recent months. "March FMS turns bearish as Iran & private credit concerns end 'frothy bull' sentiment of recent months," strategists led by Michael Hartnett wrote in a note accompanying the results.
One clear signal of the shift was a rise in cash holdings. Cash allocations increased to 4.2%–4.3% - the largest monthly jump since 2020 - and the bank’s overall sentiment gauge dropped to a six-month low. Even so, BofA’s positioning measures remain well above the deeply negative readings that have previously coincided with strong entry points for stocks and credit: "BofA positioning metrics far from uber-bear levels seen at recent big lows/good entry points for stocks & credit," the strategists added.
Macro outlooks among respondents weakened considerably. Net 7% of those surveyed now expect a stronger global economy, a sharp drop from 39% just one month earlier. Inflation expectations rose to net 45%, signaling elevated concern about price dynamics.
Expectations for monetary easing also receded. Only a net 17% of respondents anticipate lower short-term rates, the smallest share since February 2023, the survey showed. At the same time, recession fears remained limited: just 5% of managers foresee a hard landing for the global economy, while 46% expect "no landing" and 44% foresee a soft landing.
Risk perceptions shifted noticeably. Geopolitical conflict is now identified as the largest tail risk by 37% of respondents, and a majority - 63% - pointed to private equity and private credit as the most likely sources of a systemic event. The broader macro profile among managers is increasingly stagflationary: 51% expect growth to run below trend while inflation runs above trend.
On positioning and trade preferences, investors continue to show crowded directional bets. A slim majority - 51% - said AI stocks are not in a bubble, and the most popular trades remained "long gold" and "long global semiconductors."
Asset allocation moves in March signaled a defensive rotation. Managers reduced equity exposure to a net 37% overweight and raised cash levels, while maintaining strong exposure to commodities. Commodity allocations sit at roughly a net 34% overweight, the highest reading since April 2022.
Regional and currency positions also stood out. Emerging market equities remain a primary overweight for investors, reaching their highest level since 2021, while managers continue to be net underweight the U.S. dollar.
Sector flows reveal the same defensive posture. Respondents reported shifting away from consumer discretionary stocks and banks and into healthcare, consumer staples, and cash. Conversely, investors remained underweight bonds and consumer-facing stocks.
Overall, the March FMS describes a market environment where defensive positioning and higher cash balances coexist with concentrated bets in commodities and select equity pockets, but without the extreme risk-off stances that historically mark market bottoms.
What this means for markets:
- Investors are dialing back equity exposure and increasing cash and commodity holdings.
- Risk focus has shifted toward geopolitics and private credit, influencing sector and asset allocation choices.
- Despite weaker sentiment, aggregate positioning has not reached the severe levels associated with capitulation.