I’m a big fan of the Bank of America Global Fund Manager Survey. Firstly, because it pertains to the positioning and perspectives of real investors managing significant amounts of money. And secondly, because Bank of America tries to translate the responses given in the survey into signals and even investment decisions—something often overlooked by many «storytellers.»
But what makes the Global Fund Manager Survey intriguing is its frequent contradictions. For instance, the latest edition explicitly explores the Artificial Intelligence hype, questioning whether widespread adoption of AI will lead to an increase in corporate profits and/or job growth.
The figure above reveals that a total of 54 percent of respondents in the Global Fund Manager Survey anticipate AI will positively impact profits over the next two years. That’s just over half—not exceptionally high.
Given this, it seems somewhat strange that the same fund managers are the most overweight in technology stocks since December 2021. For those who think AI and technology stocks aren’t synonymous, Big Tech is the sole reason the S&P 500 Index is up this year. This is due to the fact that profiting from AI requires access to data. It’s precisely well-known names like Alphabet, Apple, Meta, and Microsoft that have this data. Additionally, it’s the NVIDIAs of the world that provide the processors to manage all this AI data and are experiencing even steeper growth.
But it doesn’t stop there. Again, these same fund managers, with a notable 55 percent majority, see «Long Big Tech» as the most crowded trade. Big Tech stocks also feature prominently in the top 5 as the biggest «tail risk.»
There are, of course, countless other possible reasons why you might find technology stocks appealing, but I also struggle with those. Big Tech is more dependent on advertising revenue than ever before, making them significantly more cyclical than in the past. Interest rates are rising, which doesn’t bode well for growth stocks from a simple discounted cash flow model perspective. The forward P/E of Big Tech has surged to a whopping 40, and the list goes on. As you can imagine, I would have expected 95 percent of fund managers to predict that AI will rescue profits.
Jeroen Blokland is the founder of True Insights, a platform that provides independent research to construct diversified multi-asset portfolios. Blokland was formerly the head of multi-assets at Robeco. His chart of the week appears every Thursday on Investment Officer.