The survey was conducted between March 6 and 12, covering 181 fund managers overseeing a total of $529 billion in assets. This time window fully captures the market reaction following the outbreak of the U.S.–Iran conflict, making the data particularly meaningful.

What Are Fund Managers Worried About?

First: Geopolitics.
The survey shows that 37% of respondents now view geopolitical conflict as the top tail risk, sharply up from 14% in the previous month. Meanwhile, the previously dominant concern — the “AI bubble” — has dropped to just 10%. The timing of this shift closely aligns with the U.S.–Israel military strikes on Iran on February 28.

What makes this conflict particularly alarming is its broader impact: disruption of shipping through the Strait of Hormuz, Iran’s sustained retaliatory strategies, and oil prices surging above $100 per barrel. Together, these factors are forcing markets to reprice the probability of stagflation. The proportion of respondents expecting stagflation over the next 12 months has risen from 42% to 51%. In other words, more than half of fund managers now anticipate a combination of slowing economic growth and rising inflation.

Second Risk: Private Credit.
According to the survey, 63% of respondents identify private credit as the most likely source of a systemic credit event — the highest level on record. Seema Shah, Global Chief Strategist at Principal Asset Management, highlighted the core issue: once macro conditions shift, seemingly independent risks — geopolitical tensions, private credit vulnerabilities, and concerns about AI — could become interconnected and amplify one another.

The private credit market has expanded to nearly $2 trillion in recent years, but remains far less transparent than public markets, with heavy exposure to leveraged buyouts and high-risk borrowers. If economic growth slows and default rates rise, this “shadow banking” system could become the first domino to fall.

How Are They Positioning?

The changes in portfolio allocations during March clearly illustrate a shift from a “growth trade” to a “stagflation trade.”

U.S. equities remain underweight, with a net underallocation of 17%, while exposure to consumer discretionary stocks has fallen to its lowest level since December 2022. The once-crowded trade of going long AI and the “Magnificent Seven” has lost its dominance — only 9% of respondents now consider it the most crowded trade, down sharply from 54% in December.

This shift is significant: as interest rate expectations adjust and geopolitical risks rise, technology growth stocks — which rely heavily on discounted future cash flows — face increasing valuation pressure.

Commodity allocations have risen to a net overweight of 34%, the highest level since April 2022, reflecting a standard hedge against inflation. Regional positioning is also notable: emerging market equities are now at a net overweight of 53%, the highest since early 2021, while Japanese equities have shifted from a slight underweight to a net overweight of 14%.

These markets generally have lower valuations and higher sensitivity to global growth cycles. If Bank of America’s contrarian logic holds — that under-positioned assets may outperform if tensions in Iran ease — fund managers may already be positioning for assets that “fell less and could rebound faster.”

A cash allocation of 4.3% has returned to a neutral range but is still far from levels typically seen in extreme bear markets. This suggests that the market has not yet reached an ideal tactical entry point.

In essence, fund managers are holding cash not because they expect it to generate returns, but because they have not yet decided where to deploy capital next. Key variables — geopolitical developments, inflation trends, and the Federal Reserve’s policy stance — remain highly uncertain.

For retail investors, the takeaway is clear: the dominant narrative of the past two years — “AI plus rate cuts” — is being replaced by a new framework defined by “stagflation plus geopolitics.”