Global investors turned sharply bearish in March as the ongoing war with Iran and mounting concerns about private credit markets ended months of “frothy optimism,” according to Bank of America’s monthly Global Fund Manager Survey released Tuesday.
Cash levels among the 210 fund managers surveyed — who collectively oversee $589 billion in assets — surged to 4.3 percent of portfolios from 3.4 percent in February, the largest single-month jump since the onset of COVID in March 2020. BofA uses cash levels as a contrarian indicator, issuing a “sell” signal when cash falls to or below 4 percent, on the theory that low cash means managers are fully invested and markets are vulnerable, and a “buy” signal when cash rises to 5 percent or above, suggesting excessive fear. The March surge pushed cash back above the sell-signal threshold and returned the indicator to neutral.
Overall sentiment, as measured by BofA’s composite indicator, dropped from 8.2 to 5.6, a six-month low, though still well above the 1.8 trough recorded during last April’s Liberation Day selloff.
The mood swing was dramatic on the macro front. The share of managers expecting a stronger global economy over the next 12 months collapsed to a net 7 percent from 39 percent in February. Inflation expectations surged from a net 9 percent to a net 45 percent, the first signs of what BofA strategists called “a second wave higher” in price pressures. Expectations for rate cuts fell to their lowest level since February 2023.
Despite the gloom, recession fears remain muted. Just 5 percent of respondents expect a hard landing for the global economy, with 46 percent still forecasting no landing and 44 percent a soft landing.
Geopolitical conflict surged to the top of investors’ worry list, cited as the biggest tail risk by 37 percent of respondents, up sharply from 14 percent in February. The previous top concern — an AI bubble — fell to just 10 percent. For the eighth consecutive month, private equity and private credit topped the list of most likely sources of a systemic credit event, cited by 63 percent of managers. A separate BofA measure of credit default risk rose sharply to its highest reading since April 2025, with a net 46 percent of managers saying risk is above normal levels, up from 17 percent in February.
The shifting outlook drove significant rotation in portfolios. Managers moved out of banks, European equities, and consumer discretionary stocks — the last now at its most underweighted position since December 2022 — and into Japan, healthcare, and cash. Commodity allocations reached their highest overweight since April 2022, while emerging market equity overweights hit their loftiest level since February 2021.
Allocations to U.S. equities remained underwater, with managers sitting at a net 17 percent underweight, a slight improvement from last month’s 22 percent underweight.
Gold and global semiconductors tied as the most crowded trades, each cited by 35 percent of respondents. The Magnificent Seven trade, which peaked at 54 percent in December, has essentially unwound, with just 9 percent now calling it the most crowded position.
Oil markets reflect the same war-premium skepticism. With Brent crude currently trading around $102 per barrel, managers’ weighted average year-end price forecast is just $76 — and only 11 percent expect prices to remain above $90 by December.
BofA’s strategists noted that while sentiment has turned sufficiently bearish to justify contrarian trades — including selling oil above $100, selling the dollar above DXY 100, and buying 30-year Treasuries at a 5 percent yield — positioning data has not reached the extreme levels seen at major market lows.
At the depths of Liberation Day last April, COVID in March 2020, and the 2011 debt downgrade, equity allocations and flow indicators were far more distressed than current readings.
On the political front, 54 percent of managers expect the 2026 midterm elections to produce a split Congress, with Democrats retaking the House while Republicans hold the Senate. The probability assigned to a Democratic sweep has risen to 28 percent, up from 11 percent just two months ago.
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