The world's top investment funds are piling into assets that act as stores of value, including commodities, cash and real estate, to protect against an expected decline in bond yields, new data from Bank of America shows. It's starting.
In January, funds with total assets under management (AUM) of $256 billion expected bond yields to fall sharply this year on the back of the Federal Reserve's interest rate cuts, according to a BofA survey. The company has reduced positions.
Global Fund Manager Survey shows.
As of this month, 91% of fund managers surveyed expected short-term interest rates to fall over the next 12 months, an all-time high, up from 87% in December 2023. These numbers represent the highest level of bullish views on interest rates since BofA policy. The investigation first began in 2001, 20 years before his death.
With bullishness on the prospect of lower short-term interest rates reaching an all-time high, these funds in turn poured money into assets likely to benefit from lower interest rates, such as commodities and real estate.
As a result of the move, investment funds reduced their holdings in bond-heavy banks and insurance companies, cut back on investments in the UK and Japan, and withdrew from the bond market themselves.
The fund invested the money in assets expected to increase in value as interest rates fall, including the real estate market, where investment values hit a 12-month high. Lower interest rates serve to boost the real estate market by making mortgages more affordable.
Investments in cash and commodities also surged as funds sought to take advantage of expected increases in value, as the relative opportunity cost of holding these assets relative to bonds falls when yields fall.
Looking ahead, most funds surveyed (52%) say the Fed will have the biggest impact on stock prices in 2024, and more than two-thirds (68%) say the Fed will have the biggest impact on stock prices in 2024. respondents said they believe this will be the most important driver of bond yields. next year.
Investment funds will be the main beneficiaries of lower interest rates as investors predict that cheaper access to capital is likely to boost innovation-driven growth companies that invest heavily in research and development. predicted it would be a technology or biotech company.
Overall, as of January 2024, the healthcare and technology sectors rank first and second as the industries in which investment funds invest the most. Meanwhile, investment funds were the most underweight to UK stocks.
But more broadly, investment funds remain more overweight in bonds and the US economy than they have been in the past 20 years, and underweight in the UK and eurozone economies over the same 20-year period.
Since the start of the coronavirus pandemic, the UK economy has grown at a slower rate than other G7 countries except Germany, with growth slowing from the fourth quarter of 2019 to the third quarter of 2023, according to OECD figures. The rate remained at only 1.4%.
For comparison, the euro area and Japan's economies both grew by 3% over the same period, while the US economy grew by 7.3%. Germany recorded the lowest growth rate among the G7 countries, increasing by just 0.3%.