A growing number of global fund managers have expressed a bullish sentiment toward international equities, anticipating them to outperform all other asset classes over the next five years, according to Bank of America’s June Global Fund Manager Survey.

This survey, featuring responses from 190 managers managing $523 billion, showcases a clear shift in investment strategy:

• 54 percent favor international stocks
• Only 23 percent prefer U.S. equities
• 13 percent opted for gold
• A mere 5 percent supported bonds

This shift marks a significant evolution in sentiment as recession expectations diminish and a global soft landing narrative gains traction.

Key Findings from the Survey

1. Change in Recession Outlook

• In April, a net 42 percent anticipated a recession.
• That number flipped in June, with 36 percent believing a recession is unlikely.
• Confidence in a soft landing has now risen to 66 percent, an eight-month high.

2. Decreased Favor for U.S. Assets

• Fund managers are currently the most underweight on the U.S. dollar seen in the last two decades.
• Allocations to U.S. equities remain below historical norms, while interest in eurozone and emerging market stocks has surged.

3. Rotating Sectors

• Portfolios are leaning towards equities, emerging markets, energy, and banking sectors.
• Defensive sectors like utilities, healthcare, and consumer staples are being trimmed.

Tools to Monitor Market Trends:

• Access historical S&P 500 constituents to analyze equity exposures and company shift dynamics.
• Utilize industry classification tools to observe global sector allocations.

Crowded Trades and Policy Doubts Ahead

Long gold continues to be the most crowded trade, flagged by 41 percent of fund managers. Alternatively, enthusiasm surrounding the famed Magnificent 7 tech stocks has notably waned, cited by only 23 percent.

Furthermore, there is skepticism regarding proposed U.S. tax cuts under the so-called Big Beautiful Bill:

• 33 percent foresee growth upside in 2025,
• 81 percent project it will expand the U.S. budget deficit, thus increasing fiscal risk apprehensions.

Implications for Investors

The significant shift towards international equities and risk-sensitive sectors indicates cautious optimism about the global economy. Even so, investors must remain vigilant, as rising geopolitical tensions and the risk of trade disputes persist as notable factors to consider.

Asset managers watching global trends should closely follow fund flow insights and sector allocations to better navigate evolving market dynamics.