Why fund manager optimism is at almost 3-year highs

Even if you steer clear of the news, you can’t get away from COVID-19. So why are fund mangers the most bullish in years?

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It’s hard to get away from COVID-19.

Even if you eschew the news, you’re reminded of it every time you go to the shops or really anywhere in public as social distancing remains the norm.

If you’re working from home, you’re reminded of it simply by the fact that you’re not at the office; no longer communicating face to face.

And if you’ve been planning any international travel, you’ll be reminded of it by your empty suitcase, still waiting patiently for borders to reopen.

Like I said, it’s hard to get away from this insidious virus. And the few items I listed above are tame compared to the far harsher reminders millions of people are faced with across the world. That of serious illness and the deaths of loved ones.

COVID’s ‘push-and-pull’

Unfortunately, with global cases soaring by some half-million per day, we’ll be stuck in this viral rut until one or more vaccines are widely distributed.

Fortunately, that timeline is looking ever nearer.

With two highly promising vaccines already announced in November, AstraZeneca plc (NASDAQ: AZN) became the third company to announce its vaccine is more than 90% effective in the latest trials.

Nowhere is this almost daily mix of really bad and really good news more clearly visible than in the share markets

As David Carter, chief investment officer at Lenox Wealth Advisors in New York, is quoted as saying by the Australian Finance Review (AFR):

Markets are still stuck in a push-and-pull between the dramatic rise of new COVID cases versus apparent progress on vaccines. This is likely to continue until we have an approved and distributed vaccine.

Why fund manager optimism is soaring

In the ongoing push-and-pull between the virus and humanity’s all-out race for a cure, hopes for a rapid vaccine rollout are trumping fears of an extended pandemic.

According to AMP Capital portfolio manager Dermot Ryan (quoted by the AFR):

We’re coming home strong in 2020. I think from a bottom-up perspective, we’ve seen some strong AGM [annual general meeting] guidance upgrades coming through in the last few weeks…

Those reopening trades are all benefiting as we get back to normal and demand can increase. The vaccine trade has just put a rocket under that… We [Australia] basically get a head start on the recovery and it allows domestic companies to build momentum faster than offshore companies…

We’re quite bullish on the employment numbers. We think the recovery is well and truly in play. The RBA called the start of it in September but this is a globally synchronised recovery and now we’re coming out of it.

As Bloomberg reports, Ryan is far from the only fund manager with a bullish outlook. In fact, Bank of America Corp‘s (NYSE: BAC) latest fund manager survey revealed the highest level of optimism since January 2018.

According to Chris Gaffney, president of world markets at TIAA Bank, “It’s been almost impossible being bearish. The Fed sets us up to be very anti-bearish going forward, even with bad Covid news, even with economic shutdowns.”

Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors notes that it’s the central banks and governments working together that have really encouraged share markets:

Markets always feel it’s difficult to be bearish when there is such a large degree of federal coordination, fiscal and monetary policy helping to support the markets. Markets have become accustomed to these short-term volatility events that recover very quickly, and I think that does condition them to come in and buy the dip whenever there’s any challenges.

Jonathan Boyar, managing director at Boyar Value Group, shares their optimism, but sounds a note of caution (from Bloomberg):

In the short-term, anything is possible and from a humanitarian perspective it is awful that the people who currently need the most help are not getting it. But with multiple viable vaccines on the horizon, I think the market will largely look through the horrible headlines. There certainly, however, will be some fits and starts along the way.

Morgan Stanley’s Mike Wilson also cautions this many bulls create the potential for a share market correction (from the AFR):

Most noticeable to us last week is the almost universally bullish view from investors, including retail. In fact, it’s very hard to find a bear on 2021 — a dramatic shift from even three months ago. The high efficacy of the vaccines combined with a market friendly election outcome (divided Congress) are good reasons. However, price action appears exhaustive and the market seems ripe for another correction.

Any correction should offer new buying opportunities

Chris O’Keefe, managing director at Logan Capital Management, isn’t overly concerned about the next correction, saying (from Bloomberg), “Every time the market has pulled in, it’s been a good buying opportunity. There’s that desire to chase that momentum.”

And, as the AFR reports, David Cassidy, Wilsons head of investment strategy, believes the forecast earnings recovery for shares in the energy, financials and travel sectors – projected for 2024–2025 – could be too pessimistic.

Cassidy says, “A fast-tracked global vaccine rollout during 2021–22 has the potential to bring forward activity levels and earnings expectations, and we are closely watching evidence on this front.”

If activity levels and earnings expectations do come forward from recent expectations, it could spell good news for some of the leading S&P/ASX 200 Index (ASX: XJO) travel shares.

The Qantas Airways Limited (ASX: QAN) share price, for example, is up 3.9% at the time of writing, but Qantas shares are still down 22.2% since 2 January.

Then there’s travel agency Flight Centre Travel Group Ltd (ASX: FLT). Flight Centre’s share price was ravaged by COVID-19, falling more than 77%. The Flight Centre share price is up 0.3% in intraday trading, but still down 59% year-to-date.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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