Global investors heavily positioned against US assets: Bank of America

Fund managers are maintaining substantial underweight positions in both US equities and the greenback, potentially setting up significant ‘pain trades’ if market sentiment shifts.

A trader working on the floor of the New York Stock Exchange. Picture: Timothy A. Clary/AFP

Global investors are heavily positioned against American assets, with respondents reporting a net 36 per cent underweight position in US equities and the most underweight stance on the greenback in two decades.

This “Sell America” positioning comes despite overall investor sentiment returning to “Goldilocks bull” levels as trade war and recession fears abate.

“The biggest summer pain trade is long the buck,” warns Michael Hartnett, Bank of America’s chief investment strategist, highlighting that extreme bearish positioning against the US currency.

Traders work on the floor of the New York Stock Exchange. Picture: Michael M. Santiago/Getty Images/AFP

With a net 61 per cent of respondents viewing the dollar as overvalued, currency positioning has reached a statistical extreme of 1.5 standard deviations above the long-term average.

These underweights create significant vulnerability for investors should markets move against them.

The survey of 222 fund managers with $587bn assets under management identified three potential contrarian trades that could trigger dislocations: going long the US dollar against gold; buying US equities while selling European stocks; and rotating from banks to consumer sectors.

The most crowded trades, according to respondents, remain long gold (41 per cent), long Magnificent 7 stocks (23 per cent), and short US dollar (20 per cent) – further highlighting the concentrated positioning that could unwind painfully.

Notably, while investors are underweight US equities broadly, their continued overweight in the Magnificent 7 tech stocks suggests a deeply bifurcated view of American markets.

It comes after BlackRock rebalanced its model portfolio early this week to take profit on Australian and European stocks and add to Emerging Markets stocks.

“Ongoing uncertainty in markets lead us to hold the portfolio’s growth/defensive split steady as we await further clarity on macro, policy and geopolitical developments,” BlackRock said.

However, the “Sell America” consensus aligns with fund managers’ longer-term asset allocation outlook, with a majority (54 per cent) expecting international stocks to be the best-performing asset class over the next five years versus just 23 per cent backing US stocks.

The remaining respondents see gold (13 per cent) or bonds (5 per cent) as top performers through 2030.

It’s the first time that Bank of America’s survey asked investors to predict the best performing asset classes over a five-year horizon. The “Sell America” trade comes as US President Donald Trump lifts tariffs and pushes legislation that will add about $US2.4 trillion to the budget deficit over a decade.

If the fund managers are right, it will be a reversal of one of the best trades since the global financial crisis of 2007-08. US stocks have beaten global shares in 13 of the past 15 calendar years.

But so far in 2025, the S&P 500 has underperformed global stocks by the most since 2009.

BofA’s survey – which was conducted from June 6 to 12 – found that cash levels have dropped to 4.2 per cent from 4.8 per cent in April, though not yet reaching worryingly low levels that would typically signal contrarian sell signals.

BlackRock rebalanced its model portfolio early this week to take profit on Australian and European stocks and add to Emerging Markets stocks. Picture: Michael M. Santiago/Getty Images/AFP

The BofA Bull & Bear Indicator has risen to 5.4 points, a three-month high but still in neutral territory.

The dramatic reversal in recession expectations stands out as one of the survey’s most significant shifts. Just two months ago, a net 42 per cent of respondents considered a global recession “likely” in the coming year. That figure has completely reversed, with a net 36 per cent now saying recession is “unlikely” – representing one of the fastest sentiment shifts in recent years.

A comfortable 66 per cent majority see a “soft landing” scenario for the global economy – an eight-month high – while only 13 per cent anticipate a “hard landing,” down sharply from 49 per cent in April. The remaining respondents are split between “no landing” (16 per cent) and other outcomes.

Despite improving growth expectations, investors remain cautious overall, with 46 per cent still expecting a weaker global economy in the coming year. However, this represents a substantial 13-percentage-point monthly improvement and a 36-point jump since April’s lows.

The survey shows investors rebalancing portfolios accordingly, with a significant rotation to emerging markets – now at the most overweight since August 2023 – energy, banks and industrials.

This comes at the expense of traditional defensive sectors like utilities, consumer staples and healthcare.

On the subject of fiscal policy, fund managers show little confidence in the “One Big Beautiful Bill” currently being debated in Congress. While 33 per cent believe it could increase US growth, an overwhelming 81 per cent expect it will primarily expand the US deficit. This fiscal scepticism is likely contributing to expectations of higher bond yields, now at their highest level since August 2022.

Trade war fears remain the top “tail risk” cited by investors at 47 per cent, although this has declined significantly from 80 per cent in April. Rounding out the top three concerns are Federal Reserve rate hikes (17 per cent) and potential credit events caused by rising bond yields (16 per cent).

Originally published as Global investors heavily positioned against US assets: Bank of America