BofA February Portfolio Manager Survey

Portfolio managers of the largest investment funds are beginning to look at the prospects for the global economy with optimism. They sharply reduced the proportion of cash in their portfolios, increasing their investments in US stocks, especially the largest technology ones. Shares of such companies are also represented on the Russian market, and their quotes are also growing faster than the market, but their turnover in the Russian Federation is small.

A February survey of portfolio managers by Bank of America (BofA) analysts showed a sharp drop in the share of cash in investors’ portfolios. The average cache share dropped from 4.8% to 4.2%, the lowest since August 2021. The last time the figure dropped this much was in January of last year. At the same time, the number of managers whose share of cash in the portfolio was higher than the indicative level was only 6% higher than the number of those who had this indicator lower. A month ago the excess was 17%.

The decline in cash reserves comes amid reduced geopolitical risks and improved expectations about the global economic outlook. According to the BofA survey, the key risk for managers was the risk of inflation, replacing the risk of geopolitics that dominated in January. In addition, for the first time since February 2022, the number of portfolio managers who do not expect a global economic recession in the next 12 months is equal to those who still do not rule it out.

The lack of further escalation in the Middle East, as well as the recent publication of positive data on the US economy, contributed to the improvement in the mood of portfolio managers. In particular, GDP growth in the fourth quarter was 3.3% (annualized), while analysts had expected a rise of only 2%. For the entire year, the country’s economy grew by 2.5%, which is 0.6 percentage points higher than in 2022. “The United States is almost alone among developed economies in showing economic growth this year, and capital flows are responding to this,” notes Oleg Novikov, investment director at Astero Falcon.

The reporting season that started at the end of January in the United States adds optimism to investors. According to FactSet, 75% of the companies that have already reported have managed to beat analysts’ earnings per share estimates. “Company reports showed that, despite the current high level of rates, key American companies were able to show growth in both sales and profits,” notes Mr. Novikov.

In such conditions, investors actively use free liquidity to purchase shares. According to BofA, the number of managers whose equity investments were above the indicative level was 21% higher than the number of those whose indicator was lower. In January, the figure was more than half as low. Basically, these funds went to the American market, primarily into shares of high-tech companies. According to BofA, two-thirds of respondents named the most popular trading idea in February the purchase of shares of the Big Seven (MAG7) companies – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta (whose activities are recognized as extremist in the Russian Federation and are prohibited). “Information technology is the main growth sector in the global economy, associated with a technological breakthrough that has been going on for more than 20 years,” notes Ivan Lavrinenko, director of investment at Era Investment Management Company.

The Russian market of IT companies is quite isolated from global investors, but the same trends are observed there, reinforced by the need for import substitution. This is evidenced not only by the rapid growth rates of the industry index, which has grown by more than 17% since the beginning of the year, three times faster than the dynamics of the Moscow Exchange index, but also by the successful IPO of the Astra group (see Kommersant, October 17, 2023) and “Diasoft” (see material on this page). According to Ivan Lavrinenko, by the end of the year more than five IT companies may conduct IPOs. However, so far their role in the economy and the stock market is small. “If for software manufacturers the departure of foreign competitors is already a growth driver, then the development of IT equipment production requires systemic long-term investments,” points out Mr. Lavrinenko.

Vitaly Gaidaev