Risk-On Roars Back—But So Do Bubble Fears

Global fund managers are charging back into riskier assets, pushing equity allocations to eight-month highs while cash levels plunge to their lowest since early 2025. The surge in risk appetite, captured in Bank of America’s October Global Fund Manager Survey, marks the strongest wave of bullish sentiment since February—even as investors quietly brace for potential shocks in private credit and a looming AI-driven equity bubble.

Stocks, Commodities, and EMs Back in Favor

The net equity overweight climbed to 32%, up sharply from 25% in September and the highest since early 2025. At the same time, cash holdings fell to just 3.8%, slipping below the 4% contrarian “sell signal” threshold—a level that historically precedes market pullbacks.

Fund managers slashed bond exposure aggressively, with a net 24% underweight—the lowest since October 2022. Capital is rotating toward equities and commodities, with emerging markets showing standout strength: EM equity allocations surged to a net 46% overweight, the highest since February 2021.

Commodities are also regaining prominence, now holding a net 14% overweight position—the strongest since March 2023. The U.S. is back in favor too: managers turned net overweight U.S. equities for the first time since February, swinging from 14% underweight just a month earlier.

Conversely, defensive plays are out of favor. Cash, bonds, and consumer staples were broadly reduced, reflecting a market dynamic reminiscent of the late-stage “risk-on” rotations of past cycles.

Macro Sentiment Nears Cycle Highs

Investor confidence in the global economic outlook has recovered dramatically. A net 69% of respondents now believe a global recession is unlikely—the least worry about recession since February 2022. Growth expectations recorded their largest six-month jump since the post-COVID rebound in late 2020.

More than half (54%) of fund managers now anticipate a "soft landing" for the global economy, with another 33% subscribing to a “no landing” scenario where growth remains robust despite tight monetary conditions. The mood, overall, has shifted decisively toward optimism—but perhaps too far, too fast.

Rising Fears: AI Bubble and Private Credit Cracks

Beneath the bullish surface, cracks in sentiment are emerging. A record 54% of investors now believe AI-related stocks are caught in a speculative bubble, up from just 41% a month ago. In fact, the potential AI stock bubble has overtaken inflation and Fed policy as the most significant tail risk—identified by 33% of survey participants.

Valuation concerns are also intensifying: a record net 60% of global investors now say equities are overvalued, the highest level of perceived overpricing since the dot-com era comparisons resurfaced earlier this year.

Private market fragility is another mounting concern. A sharp 57% of respondents now view private equity and private credit as the most likely sources of a systemic credit event—more than double last month’s reading (26%). It’s the strongest conviction on credit risk since 2022, reflecting unease about leverage and illiquidity in private assets after years of low-rate-driven expansion.

The Crowded Trade Tightens: Gold Takes the Top Spot

Amid this tug-of-war between greed and fear, “long gold” has emerged as the market’s most crowded trade, cited by 43% of investors—surpassing the once-dominant “long Magnificent 7” positioning at 39%.

Gold’s rally has been nothing short of historic. The SPDR Gold Shares ETF (GLD) has soared more than 60% year-to-date, setting up 2025 to potentially become its strongest performance year since 1979. The shift underscores a curious paradox: investors are embracing risk across equities and commodities while simultaneously hedging against systemic tremors.

Source: https://www.hedgefundtips.com/october-2025-bank-of-america-global-fund-manager-survey-results-summary/