US President Elections: US Prez poll now biggest tail risk for equities: BofA fund managers survey

The outcome of the 2020 US Presidential election has now emerged as the top risk for markets as trade war concerns ease, shows BofA’s monthly Global Fund Manager Survey (FMS). However, trade tension worries still have not gone away completely and remain a tail risk, they said.

“The outcome of the 2020 US presidential election dominates, with 29 per cent of FMS (fund manager survey) participants saying it is the top “tail risk”; followed by trade war (#2) and possible popping of the bond bubble (#3),” the survey highlighted. The US presidential election is scheduled for November, 2020.

BofA did the survey between January 9 and 16 with 249 panelists managing $739 billion assets participated in it.

The survey showed fund managers remained bullish on the market, though they were not euphoric at all. Their allocations to emerging market equities and those in the euro zone increased by 7 percentage points and 3 percentage points month-on-month to 32 per cent and 27 per cent, respectively.

“Emerging market equities continued to be the most preferred option among FMS investors,” BofA said. But in the overall portfolio, allocation to equities dropped 5 percentage points to 4 per cent ‘overweight’ as investors rotated into higher beta regions, the survey showed.

BofA said one should buy industrials, energy and UK equities if the macros surprise on the upside. “On the other hand, if the US dollar depreciates, then one can sell emerging markets and gold,” it said.