BofA survey shows 32% of fund managers cite AI bubble as top tail risk; investor sentiment surges to third most bullish level since 2022.

Bank of America’s August Global Fund Manager Survey indicates a significant shift in investor sentiment, with 32% of fund managers citing an AI bubble as the top tail risk, surpassing concerns over inflation and geopolitics. This marks a notable increase in caution among investors as they navigate the evolving market landscape.¹⁴⁵

Investor sentiment has surged to its third most bullish level since 2022, with cash levels dropping to 3.5% of assets under management, the sixth-lowest since 1998. The survey shows that 59% of managers are rotating into defensive, value, and cyclical stocks to hedge against potential AI-related downturns, more than double the level from July.²

Equity allocations have also risen, with a net 56% overweight in global equities, the highest since November 2021. This bullish positioning is coupled with a record 56% of respondents expecting a no landing scenario, while 43% anticipate a boom, the most optimistic outlook since February 2022.³

Despite this optimism, Bank of America advises caution, suggesting that investors should consider defensive strategies rather than increasing exposure to risk assets. The bank has identified several contrarian investment opportunities, including long positions in consumer staples and gold, which 16% of fund managers view as undervalued.

Overall, the survey reflects a complex market sentiment, balancing bullishness with caution regarding potential risks associated with AI investments.