Fund managers worldwide sharply increased their equity exposure in May, according to Bank of America’s monthly Global Fund Manager Survey (FMS), driving several positioning indicators close to levels that historically prompt caution.
The survey, which canvassed 200 managers between May 8 and May 14, recorded a jump in net equity allocations from a net 13% overweight to a net 50% overweight. That one-month change was the largest single-month increase on record and represents the highest overall allocation level since January 2022.
Cash holdings among surveyed managers fell from 4.3% to 3.9%. That drop pushed cash below the 4% threshold that Bank of America uses as a contrarian sell signal, signaling that investors as a group are becoming notably less defensive.
At the same time, BofA’s Bull & Bear Indicator rose to 7.8, a reading the bank described as a "chip shot" away from the 8.0 level that would itself trigger a sell signal. BofA strategists led by Michael Hartnett summarized the positioning as: "Bull capitulation almost complete, early June ripe for profit-taking, bond yields to determine degree of pullback."
Portfolio shifts were concentrated. Managers built weightings in U.S. equities, technology stocks and commodities, while cutting exposures to cash, bonds, U.K. equities and the Eurozone. The survey also showed a marked tilt toward cyclical sectors: the relative overweight in cyclicals versus defensives reached its highest level since January 2018, and conviction that large-cap stocks will outperform strengthened to its most confident point since June 2022.
One clear driver of the bullish reallocation was a sharp improvement in profit expectations. The survey logged its sixth-largest monthly increase in profit optimism on record, with a net 17% of respondents now expecting global profits to improve. That flips the prior month’s net 14% who anticipated a deterioration in profits.
Despite the renewed profit optimism, respondents still priced in monetary easing to some extent: 50% of managers expect Federal Reserve rate cuts within the next 12 months. Those expectations exist alongside a notable rise in inflation worries, which have become the dominant perceived tail risk.
Forty percent of respondents cited a second wave of inflation as the biggest tail risk, up from 26% in April and putting inflation ahead of geopolitical conflict, which was cited by 20% of respondents. In parallel, expectations for higher short-term rates increased from a net 4% to a net 23%, the strongest reading since October 2022.
Survey participants were also explicit about bond-market risks. Sixty-two percent of managers said that if bond yields make a large move in the next 12 months, the 30-year U.S. Treasury yield is more likely to exceed 6% than to fall below 4%.
On crowded trades, the shift into semiconductors was especially pronounced. Seventy-three percent of respondents named "long global semiconductors" as the most crowded trade in May, up sharply from 24% a month earlier when it had shared the top spot with "long oil."
Taken together, the survey paints a picture of aggressive equity positioning backed by brighter profit expectations, while elevated inflation concerns and rising rate expectations create significant upside risk for yields and potential timing for profit-taking.