Global fund managers are wrong on inflation, rates and bonds so far this year

By Brett Arends

True to form, the people running the world's biggest pension funds, mutual funds and endowments have been caught completely flatfooted by the latest surge in inflation.

Top global fund managers came into 2024 complacent about inflation, confident about falling interest rates, and bullish on bonds, according to the authoritative monthly surveys conducted by BofA Securities.

Eight out of ten money managers expected inflation to fall this year, a record 62% expected bond yields to follow suit, and a stunning 89% expected the Fed would cut rates, the December survey revealed.

As a result, overall they were holding a higher percentage of their portfolios in bonds than at any time since March 2009 - the absolute depths of the global financial crisis panic.

"When asked 'which asset class do you expect to perform best in 2024?', 45% said 'bonds,'" reported BofA Securities investment strategist Michael Hartnett and his team.

Oops. Bonds so far this year are being crushed by stocks. So far the iShares U.S. Aggregate Bond Index ETF AGG has lost more than 2% since January 1, including reinvested coupons, trailing the Vanguard Total U.S. Stock Index ETF VTI by nearly 10 full percentage points.

The Vanguard Total World Bond Index ETF BNDW is down more than 1%, trailing the Vanguard Total World Stock Index ETF VT by more than seven percentage points.

Inflation, far from falling, is speeding up. The latest data show that since the start of 2024 the official Consumer Price Index has risen at an annualized rate of 4.6%, the fastest since late 2022.

See: Inflation rises sharply again in March, CPI shows, and raises doubt about Fed rate cut

Meanwhile the same fund managers came into 2024 bearish about commodities, heavily underinvested, and convinced they would keep going down.

The Goldman Sachs S&P GSCI Commodity-Indexed Trust GSG so far since January 1? Up 13%.

BofA Securities polled just over 200 money managers who in total controlled more than $600 billion in client assets.

-Brett Arends

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04-10-24 1047ET

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