Recent insights from Bank of America’s recent fund manager survey indicate a significant shift in investor sentiment regarding long-term market leadership. A clear majority of global investors now anticipate international equities outperforming their U.S. counterparts over the next five years.

The survey, encompassing a broad spectrum of global fund managers, revealed that 54% believe international stocks will be the leading asset class for the coming half-decade. This perspective contrasts sharply with the mere 23% who foresee U.S. equities achieving similar outperformance.

Furthermore, combined allocations to traditional safe havens such as gold, government bonds, and corporate bonds collectively garnered only 18% of the sentiment, underscoring a prevailing appetite for growth, albeit primarily outside the domestic U.S. market.

The undercurrent of this evolving outlook appears to be driven by heightened concerns surrounding global trade dynamics. A substantial 47% of fund managers identified a trade conflict precipitating a global recession as the primary “tail risk” to market stability.

This particular concern has consistently held the top position for three consecutive months, highlighting its persistent influence on risk perception. Additional identified tail risks include potential interest rate hikes by central banks in response to inflationary pressures, and the risk of a credit event stemming from a disorderly increase in bond yields.

Despite these significant risk considerations, the overall investor sentiment gauge has registered an improvement in recent weeks, reaching levels not observed since prior to certain significant policy announcements.

This suggests a nuanced “Goldilocks bull” environment, characterized by cautious optimism rather than unbridled bullishness. Notably, investor expectations for a “soft landing” of the global economy within the next 12 months have markedly increased, with 66% of respondents anticipating such an outcome, a considerable rise from prior survey readings.

This confluence of factors —a preference for international equities, persistent concerns over global trade, an underlying improvement in overall sentiment — presents a complex but discernible landscape for investors.

While the U.S. market has enjoyed a period of robust performance, the collective wisdom of global fund managers suggests that future opportunities for superior returns may increasingly reside in non-U.S. markets. This signals a potential re-evaluation of geographic asset allocation strategies for those seeking to optimize long-term portfolio performance.