Investor Sentiment at 15-Year High: ETFs in Focus

According to a Bank of America Corp. survey, investor risk appetite has reached its highest level in 15 years, with global equities emerging as the most favored asset class, as quoted on Yahoo Finance. Fund managers’ cash holdings have dropped to their lowest levels since 2010, and 34% of respondents expect global stocks to be the best-performing assets in 2025.

Meanwhile, a net 11% of participants reported being underweight in bonds. This bullish stance is supported by expectations of strong economic growth and lower U.S. interest rates in 2025. Overall investor optimism, measured by cash levels, equity allocations, and global growth expectations, rose to 6.4 from 6.1 but remains below the "frothy" levels recorded in December 2024.

Equity Rally Driven by AI and Economic Resilience

Since late 2022, global stocks have surged over 60%, thanks to the optimism around artificial intelligence (AI) and the belief that the U.S. recession has been averted. Initially driven by a handful of U.S. technology stocks, the rally is now expanding as investors shift toward undervalued European equities. The Vanguard FTSE Europe ETF VGK trades at a P/E of 13.0Xwhile SPDR S&P 500 ETF Trust SPY has a P/E of 17.86X.

Rotation From Overvalued U.S. Stocks to European Markets

The survey revealed that 89% of respondents believe U.S. equities are overvalued — the highest percentage since at least April 2001. Confidence in "U.S. exceptionalism" has weakened, with investors increasingly favoring European stocks.

The Euro Stoxx Index is now expected to outperform the tech-heavy Nasdaq 100 in 2025. So far this year, the European benchmark has gained 12%, while the Nasdaq 100 has risen by 5%. Vanguard European Stock Index Fund ETF VGK is up 11% so far this year while the best-performing European ETF of this year has been iShares MSCI Poland ETF EPOL. The ETF EPOL is up 23.2% this year (as of Feb. 17, 2025).

Fading Global Recession Concerns and Fed Rate Cut Expectations

Investor fears of a global recession have dropped to a three-year low. Additionally, 77% of fund managers anticipate that the Federal Reserve will cut interest rates in 2025. "Long Magnificent 7" remains the most popular trade, followed by long positions in the U.S. dollar and cryptocurrency.

This sentiment puts focus on ETFs like Roundhill Magnificent Seven ETF MAGS, Invesco DB US Dollar Index Bullish Fund UUP and iShares Bitcoin Trust ETF IBIT. While these ETFs haven’t performed well so far this year, investors’ optimism around them makes them worth watching. AI ETFs are also good bets. ROBO Global Artificial Intelligence ETF THNQ is up 12.5% this year and 25% over the past year.

Bullishness on China Is Up

Meanwhile, sentiment on China turned positive for the first time in four months, potentially influenced by AI startup DeepSeek. Investors see accelerating growth in China and productivity gains as the most positive drivers for risk assets in 2025. iShares China Large-Cap ETF FXI has advanced 18.5% so far this year (as of Feb. 17, 2025) (read: DeepSeek Buzz Boosts China Tech ETFs).

Any Wall of Worry?

A global trade war in the Trump 2.0 era and a sharp, disorderly rise in bond yields have been held as the biggest threats. A less-dovish Fed has led to an increase in bond yields lately.

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