Bank of America Merrill Lynch’s July poll of global fund managers found that investors’ cash hoard stood at 5.8% of their portfolios, a level unseen since November 2001, up from 5.7% in the June survey.
A net 44% of investors considered current global fiscal policy too restrictive, and 39% expected a major central bank to adopt a policy of helicopter money over the next 12 months, up from 27% in June.
Allocation to equities dropped to the first underweight reading in four years, net 1%, from net 1% overweight last month.
The survey revealed that investors were buying protection against a sharp decline in the stock market, which is at a record high.
“Record numbers of investors saying fiscal policy is too restrictive and the first underweighting of equities in four years suggest that fiscal easing could be a tactical catalyst for risk assets going forward,” BofAML’s chief investment strategist Michael Hartnett said in a statement.
A total of 195 panelists with $537 billion in assets under management participated in the survey conducted in mid-July.
BofA said that average cash balances above 4.5% generated a contrarian buy signal and those below 3.5% a contrarian sell signal.
The survey found investors’ positioning contrarian bullish for risk assets — despite the U.K.’s Brexit vote, global terrorism and the S&P Index options (SPX) at an all-time high and the U.S. Treasury yield at an all-time low.
Although growth/profit expectations were flat to negative, only 17% of panelists thought a recession was likely.
Fund managers’ most crowded trades were long high-quality stocks, favored by 34%, long U.S./EU corporate bonds, by 20%, and short European banks, by 17%.
According to the July poll, global investors rotated out of the eurozone, banks and insurance and into U.S. equities, industrials, energy, tech and materials.
Fifty-nine percent of panelists considered geopolitical risk the biggest risk to financial market stability, followed by protectionist risk (52%) and business cycle risk (48%)
According to the July survey, allocation to bonds was relatively unchanged, while allocation to commodities improved to the highest level in more than three years, net 4% underweight from net 12% underweight in June.
A net 4% of global fund managers were underweight eurozone stocks in July, compared with net 26% overweight last month, the biggest ever single-month drop in positioning.
“After consistent underperformance of European equities over the past year, it took Brexit to finally break stubborn EU bullishness,” the European survey report said.
“Europe finally belongs to the bears,” Manish Kabra, BofA’s European equity quantitative strategist, said in the statement.
Meanwhile, U.K. equity allocation were net 27% underweight, compared with net 23% underweight last month, and the U.K. remained the most underweighted region globally.
Allocation to emerging market equities improved to 22-month highs, net 10% overweight from net 6% overweight in June.
Allocation to Japanese equities fell by one percentage point to net 7% underweight, the lowest reading in 3.5 years.
Allocation to banks dropped sharply in July to net 17% underweight from net 1% underweight last month. This was the biggest underweight since October 2012, according to the poll.
— Check out This Bull Market Is Powered By Your Indifference: Barry Ritholtz on ThinkAdvisor.