Banking giant picks assets to invest in as market risk increases

• Gold is the most favored defensive asset, with 16% of fund managers viewing it as undervalued—the highest reading since March 2023
• Survey shows extreme optimism with 56% expecting a no-landing scenario and 43% anticipating a boom, while 32% cite an AI bubble as the biggest tail risk
• Bank of America recommends long positions in gold paired with short commodities, overweight consumer staples versus technology stocks, and prefers U.K. equities over U.S. stocks

Summary

Bank of America is recommending investors shift to defensive assets despite investor sentiment reaching its most bullish levels since November 2021. The bank's August Global Fund Manager Survey revealed investors are heavily positioned in equities, with a net 56% overweight allocation—the third-most bullish reading since 2022. Cash allocations dropped to 3.5% of assets under management, the sixth-lowest level since the survey began in 1998.

Despite this optimism, Bank of America identified several contrarian defensive plays for August, including:

• Long positions in gold paired with short positions in commodities
• Consumer staples over other equity sectors
• Consumer discretionary stocks
• U.K. equities over U.S. stocks

Gold emerged as particularly attractive, with a net 16% of fund managers viewing it as undervalued—the highest reading since March 2023.

The survey showed strong economic confidence, with a record 56% of respondents expecting a no-landing scenario and 43% anticipating a boom (highest since February 2022). Confidence in AI spending remains robust, with long positions in global semiconductor stocks being the most crowded trade.

However, significant risks remain. About 32% of investors identified an AI bubble as the biggest tail risk, while 38% cited hyperscaler AI spending as the most likely source of a future systemic credit event.

Bank of America's cash rule remains on a sell signal, with allocations below the critical 4% threshold—a level historically associated with increased market risk. This positioning suggests the bank believes current bullish sentiment may be excessive and warrants a more defensive approach.