Amazon, one of the FAANG stocks, is up about 57% year to date. (Photo: AP)

Bitcoin and tech stocks were the most crowded trades in December, according to the latest Bank of America Merrill Lynch fund manager survey.

Long Bitcoin was considered the most crowded trade for the second time this year, cited by 32% of investors. Twenty-nine percent said the most crowded trade was long FAANG (Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet) + BAT (Baidu, Alibaba and Tencent), and 14% said it was short volatility.

Global investors’ average cash balance in December rose for the first time in four months, to 4.7% from 4.4% last month.

The increase pushed cash above the 10-year average of 4.5%, and put it back in “buy” territory from which it fell last month.

“This paves the way for more risk asset upside in the beginning of 2018,” said Merrill’s chief investment strategist Michael Hartnett said in a statement.

The cash rule holds that 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.

A net 8% of investors surveyed expected the U.S. yield curve to flatten in 2018, the highest level since June 2016.

“Goldilocks” remained the consensus view for the global economy, with 54% of investors surveyed expecting above-trend growth and below-trend inflation in the next 12 months, just two percentage points below than last month’s record high.

The balance of investors who believed they were taking above-normal risk fell from a record high 16% last month to net 11%, and the net share of investors who took out protection against a correction in markets increased in December to net -34%.

The net share of investors say equities are overvalued at a record high three-month moving average of net 45%.

Investors in the survey were split on when equity markets would peak in 2018. Twenty-five percent saw a peak in the first quarter, 30% in the second quarter and 28% in the second half of the year.

Investors continued to consider a policy mistake by the U.S. Federal Reserve/European Central Bank the top tail risk, cited by 23% of respondents. Fifteen percent cited a crash in global bond markets, and 14% a Chinese debt crisis.

Two-thirds of respondents said they expected U.S. tax reform to result in higher bond yields and higher stocks next year; only 3% thought it would lead to lower yields and stocks.

The percentage of respondents saying bond markets were overvalued rose to net 83%, back close to October’s record high of net 85%.

Allocation to U.S. equities rose to net 15% underweight from net 16% underweight in November, while Eurozone equities allocation fell to net 45% overweight.

Investors raised their emerging market equities allocation to net 43% overweight, reinforcing its status as a consensus overweight alongside the Eurozone, Merrill said.

Pessimism towards U.K. equities moderated slightly to net 34% underweight, up three points from November. The U.K. remains the consensus short among fund managers, according to the survey.

— Check out Why Google and Amazon Keep Fidelity and BlackRock Up at Night on ThinkAdvisor.