Inflation Fears Abound In Our First “Casual Investor Survey”

Inflation Fears Abound In Our First “Casual Investor Survey”
Andrew Rummer

almost 3 years ago4 mins

Mentioned in story

What’s going on here?

Finimizers overwhelmingly think inflation is about to take off and are much more optimistic on the stock market than on bitcoin, according to our first-ever Casual Investor Survey

What does this mean?

In homage to Bank of America’s (BoA’s) closely followed Global Fund Manager Survey of professional investors, we polled Finimizers’ opinions on a range of investing topics to coincide with the end of the first quarter. We drew responses from 196 people between March 29th and April 7th – find the full results here.

For me, the standout finding is that a net 81% of Finimizers think inflation – the rate at which prices are rising – will be higher a year from now. That’s largely in line with professional money managers, a net 93% of whom told BoA’s March survey that they expected higher inflation in 12 months’ time. 

Survey results
“Net” percentage is the difference between the percentages of positive and negative responses

Looking at specific asset classes, a net 57% of Finimizers think global stocks will be higher in a year, but only a net 5% think bitcoin’s price will rise. Respondents were broadly optimistic about economic growth and the resulting outlook for companies’ profits: fundamental factors underpinning stock market valuations.

Survey results

Perhaps the most interesting aspect of both BoA’s Fund Manager Survey and our Casual Investor Survey is the open-ended question of what people currently perceive to be the biggest risk for markets. While the pros tried to put coronavirus behind them last month, with inflationary dangers overtaking the pandemic as the sum of all fears, our survey shows the effects of the health crisis remain top of mind for smaller investors – although inflation does come a close second.

Survey results

With European regulators finding a possible link between AstraZeneca’s coronavirus vaccine and blood clots on Wednesday – threatening to slow the continent’s inoculation efforts even further – perhaps professional investors have jumped the gun a little. 

Finally, BoA’s survey always asks fund managers which investment they believe is the “most crowded” at the moment. Tech stocks came out top in March, being cited by 34% of respondents – followed by bitcoin with 24%. 

Our audience clearly moves in circles that are even more crypto-focused. When asked “where do you see others investing their money most often at the moment?” Finimizers’ top answer was crypto, accounting for 25% of responses, while tech stocks were second with 17%. 

Why should I care?

Here’s something about this surveying that might not be immediately obvious: professional investors like looking at BoA’s monthly results not just so that they can see how their peers are positioned, but also so that they can consider betting against the consensus. Such “contrarian investing” approaches posit that stocks may be most likely to fall when everyone is wildly optimistic –  and best positioned to rebound when pessimism is at its peak. 

You could therefore read Finimizers’ overwhelming consensus that inflation will pick up this year – especially when combined with similar inflation fears from the pros in BoA’s survey – as a contrarian signal to seek investments that will do well if inflation comes in lower than expected. 

One way to profit from relatively weak inflation would be to buy long-dated government bonds, which tend to fall in value when inflation accelerates and rise when it slows. The iShares 20+ Year Treasury Bond exchange-traded fund (ticker: TLT), for example, is down 13% so far this year – but might just rebound if extreme inflation worries prove unfounded.  

After all, people have been airing concerns about central bank stimulus leading to runaway inflation ever since the US Federal Reserve launched quantitative easing during the 2008 financial crisis. They’ve been proved wrong again and again, with deflation actually proving more of a problem. 

Equally, the relative lack of optimism on bitcoin among Finimizers could actually be quite bullish for the cryptocurrency – or at least not a cause for concern. Plenty would argue that you should only become seriously worried about an imminent sell-off when investors are overwhelmingly betting on further gains. 

We plan to run a Casual Investor Survey every quarter from now on, so look out for the next one near the end of June. This dataset won’t get really interesting until we can see how Finimizers’ hopes and fears are moving over time. Watch this space!

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