What is tipped to be the best asset class of 2025?

Bank of America’s closely watched investment survey reveals that professional investors are the most optimistic they have been on the global economy since 2021.

13th November 2024 13:17

Graeme Evans from interactive investor

Bullish fund managers have backed US stocks to be 2025’s best asset class after flipping their stance on the economic outlook in the wake of last week’s election.

The monthly survey by Bank of America provides a well-timed insight into the views of institutional, mutual and hedge fund managers after Donald Trump triggered a Wall Street surge by winning the race for White House in a Republican sweep.

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A fifth of the 213 survey participants provided their responses after the election result, with their positioning the most optimistic on the global economy since August 2021.

The net 23% expecting growth compares with minus 10% in October’s survey, while in relation to the US economy the result swung to 28% from minus 22% the month before.

This shift in sentiment accelerated the overweight positioning of investors on US stocks from a net 10% of respondents in October’s survey to the highest since August 2013 at 29%.

In the aftermath of the election, clients of the bank predict that US stocks will be next year’s best asset class. Their view on the top-performing equity index favours the small-cap Russell 2000 ahead of the tech-focused Nasdaq.

The net percentage of fund managers who think small caps will outperform large caps has jumped from 6% in October to 35%, boosted by their largely domestic positioning in a post-election US economy.

Tax cuts in a Trump administration and hopes for an acceleration in China growth are seen as the most bullish catalysts in terms of the outlook for 2025.

The most bearish issues for post-election respondents are the possibility of a disorderly rise in bond yields and a global trade war. The bond market jitters reflect expectations that Trump’s policies will fuel inflation in the year ahead, causing interest rates to stay higher.

Fund managers are forecasting higher inflation for the first time since August 2021, with the minus 44% recorded in October now a positive 10% after the election.

In addition, the probability of a “soft landing” has fallen from 76% to 55% for post-election respondents, while the “no landing” scenario drew an improved 33%.

Pre-election nerves meant cash levels rose from 3.9% to 4.3% for the full survey month of November, falling to 4% after the result was known.

In November’s survey, the allocation to UK equities fell seven percentage points during the month to a net 13% underweight.

The post-Budget flight from the UK comes two months after September’s report revealed the first overweight position in UK equities since July 2021.

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