BofA June Fund Manager Survey: Investors Firmly Bullish; Semiconductor Trade Crowding Hits Record High
AI summary card
BofA June Fund Manager Survey: Investors Firmly Bullish; Semiconductor Trade Crowding Hits Record High
Global fund manager risk appetite remains high, but cash allocations have ticked up slightly; inflation and an AI bubble are top concerns, while semiconductors represent the most crowded trade.
- Investors are broadly bullish, but cash levels have risen to 4.1%
- 40% expect the Fed to hike rates over the next 12 months
- Global semiconductors have become the most crowded trade in history (80%)
- The second-largest tail risk is an AI bubble (28%)
- Underweight European equities; overweight Japan, Materials, and Banks
Report interpretation
Overview
This report is based on BofA's June Global Fund Manager Survey (FMS), covering 172 participants with $465 billion in assets under management. Key findings indicate that investors remain firmly bullish overall, though sentiment has cooled slightly from May. Optimism regarding macro growth and earnings has reached a three-month high, but expectations for Fed rate hikes have risen significantly. Investors are reducing equity overweights, rotating into defensive sectors, and remaining vigilant against risks of an inflation rebound and an AI bubble.
Core views
On sentiment and positioning, investor sentiment remains bullish, with the BofA Bull & Bear Indicator rising to 8.9 (a sell signal), yet cash levels increased from 3.9% to 4.1%, suggesting some profit-taking ahead of summer. Net equity overweight fell from 50% to 38%, and technology overweight declined from 33% to 26%. Regarding the macro outlook and the Fed, global growth expectations have improved, with 47% anticipating a soft landing and 40% a no-landing scenario. Rate expectations have reached their highest level since September 2022, with 40% of investors expecting at least one Fed rate hike in the next 12 months (up from just 16% in May). Meanwhile, 55% expect Warsh to maintain a hawkish pause at his first FOMC meeting. On risks and crowded trades, the top tail risk is a "second wave of inflation" (34%), followed by an "AI bubble" (28%). The most crowded trade is "long global semiconductors" (80%, a record high). Regarding the AI cycle, 56% believe it is in a "boom" phase, while 21% see it as being in a "euphoria" phase. In terms of asset allocation adjustments, investors have moved to underweight European equities (the largest underweight since December 2024) while increasing overweights in Japan, Materials, and Banks. The USD underweight has narrowed to its smallest level since March 2025. Gold is now viewed as fairly valued for the first time since February 2024. For contrarian trade recommendations, the June call is to go long bonds, Europe, consumer stocks, and REITs, and short commodities, semiconductors, materials, and banks.
Analysis framework
The report employs a survey methodology, analyzing market trends through statistical tracking of global fund managers' positioning changes, sentiment indicators (such as cash levels and the Bull & Bear Indicator), and expectation distributions. The analytical framework assesses risk appetite via sentiment indicators, capital flows via positioning shifts, and macro risks via expectation distributions. For example, it identifies contrarian opportunities by comparing current cash levels against historical thresholds (buy at ≥5%, sell at ≤4%).
Methodology notes
Expectation Gap
Identifies trading opportunities arising from expectation gaps by surveying investor expectations on future macro data (e.g., inflation, interest rates) and comparing them against current market pricing.
Crowded Trade Analysis
When an overwhelming majority of investors hold positions in the same direction (e.g., 80% long semiconductors), the trade becomes crowded, increasing potential reversal risk. This metric is used to identify risk points where market consensus is excessively high.
Cash Level Contrarian Indicator
BofA FMS Cash Rule: Buy equities when cash levels are ≥5%; sell when ≤4%. The current level of 4.1% sits in the neutral zone and is used to gauge extremes in market sentiment.
Key data
- Cash Level4.1%Up from 3.9% in May
- Net Equity Overweight38%Down from 50% in May
- % Expecting Fed Hike40%Sharply up from 16% in May
- Most Crowded Trade80%Long global semiconductors; record high
- Top Tail Risk34%Second wave of inflation
- AI Bubble Concern28%Second-largest tail risk
- Gold Valuation View1%Share viewing gold as overvalued dropped to 1%
Impact & implications
The report suggests the current market is not at a "major top," but traders are reducing risk exposure ahead of summer. Consumer stocks are seen as the best contrarian trade during periods of "peace." Continued rises in inflation expectations or a bursting of the AI bubble could trigger market volatility. Investors should watch for signals of a Fed policy pivot and potential reversals in crowded trades.
Risks
- Second wave of inflation
- AI bubble
- Disorderly rise in bond yields
- Geopolitical conflict
What to watch
- Signals from the Fed FOMC meeting
- Changes in global inflation data
- Shifts in semiconductor sector crowding
- Expectations for U.S. midterm election outcomes