Global investors’ average cash balance held steady at 4.9% in August, still above the past 10-year average of 4.5%, according to Bank of America Merrill Lynch’s latest fund manager survey.
European investors’ cash weighting rose to 5.3%, the highest reading in more than 14 years.
“Fund managers are holding on to cash at a stubbornly high level,” Ronan Carr, Merrill’s European equity strategist, said in a statement. “Even so, European investors are positive on the growth outlook in the region but are moderating EPS expectations.”
The high cash level means that the fund manager survey cash rule is still in buy territory.
According to this rule, when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.
The survey, conducted in early August, received responses from 202 panelists with $587 billion in assets under management.
The poll found that only net 33% of investors thought corporate profits would improve over the next 12 months, a drop of eight percentage points from the July survey and 25 points from January and the lowest level since November 2015.
“Investors’ expectations of corporate profits have taken an ominous turn this year, which is a warning sign for equities over bonds, high yield over investment grade, and cyclical sectors over defensive ones,” Merrill’s chief investment strategist, Michael Hartnett, said in the statement. “Further deterioration is likely to cause risk-off trades.”
Investors continued to consider a policy mistake by the Federal Reserve/European Central Bank, cited by 22% of respondents, and a crash in global bond markets, cited by 19%, as the top tail risks to the market.
Nineteen percent also mentioned North Korea as a major tail risk.