Investors in Europe are expressing greater caution about equity performance in the immediate future, according to Bank of America's most recent European Fund Manager Survey, even as expectations for the next 12 months have brightened considerably.
The survey found that a net 4% of respondents now foresee downside for European equities in the coming few months, the weakest near-term reading since September 2024. That marks a notable reversal from May, when a net 23% of panelists had expected gains in the near term.
Looking beyond the short horizon, sentiment improves markedly. A net 71% of respondents now see upside for the market over the next twelve months, up from 58% the prior month. Expectations for corporate profits are also unusually positive: a record net 93% of managers anticipate that European 12-month forward earnings will increase, a view they attribute to top-line growth and continued cost discipline among companies.
Despite the more optimistic medium-term outlook, fund managers are trimming their exposure to the region. A net 15% report being underweight European equities in a global context, reversing an earlier net 35% overweight position that was recorded before the Iran war.
"68% think U.S. growth and earnings superiority means that Europe’s structural underperformance will continue, up from 30% in February," strategists led by Andreas Bruckner said in a note.
The survey was carried out between June 5 and June 11 and gathered responses from 198 panellists who manage a combined $540 billion. It also captured a composite picture of economic concerns and market positioning.
Inflation worries have eased but have not vanished. A net 1% of global investors now expect global growth to slow over the next year, a sharp decline from the 36% who signalled the same view in April, a move the survey links to a cooling of geopolitical tensions.
Energy markets remain a focus. Some 69% of respondents expect oil to trade above $80 a barrel by year-end. Views on macro regimes are split: a plurality of 43% anticipate a "higher-for-longer" scenario featuring steady growth and sticky inflation, while 39% still expect stagflation.
Sector preferences have shifted. Pharmaceuticals emerged as Europe’s most favoured sector, overtaking utilities, and were followed by banks and technology. At the other end of the spectrum, autos, media and retail were among the least preferred sectors. Cyclicals broadly lost appeal: a net 25% of investors expect cyclicals to underperform defensives in the near term, the most negative divergence since December 2023.
On a country basis, Germany ranked as the most preferred equity market, followed by Spain, while France was the least liked market, followed by the United Kingdom.
Interest-rate and yield expectations also skew toward higher levels. A net 34% of investors expect short-term interest rates to rise over the next year, and a net 40% expect higher 10-year bond yields. Both readings are cited as being close to the highest levels seen since 2022.
This edition of the Bank of America survey underscores a contrast in manager positioning: growing wariness about near-term equity returns alongside substantial confidence in earnings growth and market gains over a twelve-month horizon, with positioning and sector tilts reflecting those mixed signals.