Trade War Tail Risk ...

Global fund managers continue to add tech stocks to their portfolios, according to Bank of America Merrill Lynch's benchmark monthly survey, even as they reduce their broader equity market holdings to the lowest level in nearly two years amid concerns over the accelerating trade tensions between Washington and its various economic partners. 

The July edition of BAML's Fund Manager Survey, which polled 178 investment managers who run more than $663 billion worth of assets, also noted that investors appear to be dumping bank, European and emerging market stocks as they remain as concerned for the prospects of an outright global trade war as they were at the height of the Eurozone sovereign debt crisis in 2012.

"Investor sentiment is bearish this month, with survey respondents eyeing the risks from a possible trade war," said BAML's chief investment strategist Michael Hartnett. "Equity allocation has fallen notably while growth and profit expectations have slumped."

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The survey does indeed suggest a bearish outlook for both corporate and economic performance in the months ahead, with a net -11% of respondents expecting faster economic growth over the next year, the lowest since February 2016 when the S&P 500 started its current rally from an 1,850 intra-day low and a net +11% predicting corporate profits won't grow by 10% or more over the next year. 

Against that backdrop, global equity allocation fall 14 percentage points to a net 19% overweight, the survey noted, the lowest level since November 2016. 

That said, tech stocks remain the favorite trade in the survey, BAML noted, with the so-called "long FAANG+BAT" trade -- a reference to a group of stocks that includes Action Alerts Plus holdings Facebook Inc. (FB) - Get Facebook, Inc. Class A Report , Amazon Inc. (AMZN) - Get, Inc. Report , Apple Inc. (AAPL) - Get Apple Inc. (AAPL) Report as well as Netflix Inc. (NFLX) - Get Netflix, Inc. (NFLX) Report , Google parent Alphabet (GOOGL) - Get Alphabet Inc. Class A Report as well as Asia tech giants Baidu Inc (BIDU) - Get Baidu, Inc. Sponsored ADR Class A Report , Alibaba Group Holding (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report and Tencent Holdings Ltd. (TCEHY) -- topping the survey for a sixth consecutive month.

Investors also like U.S. equities more broadly, with the net overweight rising 8 percentage point to 9% overnight, the highest since February 2017. Eurozone stocks, however, are getting shown the door, with allocation falling 8 percentage points to a net 13% overweight, the lowest since December 2016.

"The other crowded trade is investor "doubt"," the survey noted, with investors favoring short positions in emerging market stocks (+12%) and long positions in the oil market (+10%) even as a net 25% -- the highest level in more than six years -- say that crude is overvalued.