Global investors in February indicated that they were reducing risk and cyclicality by rotating out of equities and into cash, Bank of American Merrill Lynch reported Tuesday in announcing the results of its latest fund manager survey.

Investors’ allocation to equities fell to net 43% from net 55% overweight in the January survey, the largest one-month decline in two years. Allocation to bonds hit a record low of net 69% underweight.

Average cash balances rose to 4.7% from 4.4% in January, moving the fund manager cash rule from “neutral” back into “buy” territory.

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.

“While this month’s survey shows that investors are holding on to more cash and allocating less to equities, neither trait moves the needle enough to give the all clear to buy the dip,” Merrill’s chief investment strategist Michael Hartnett said in a statement.

The European equity allocation was at its lowest in nearly a year, net 41% overweight, according to Manish Kabra, Merrill’s head of European quantitative equity strategy.

“Despite improving confidence in European earnings, the U.S. and emerging market profit cycles seem more favorable to investors right now,” Kabra said.

Allocation to Japanese equities dipped slightly to a net 26% overweight in January, but remained close to two-year high of 32% in November.

“The Japanese market exhibited sensitivity to global risk sentiment in the recent market sell-off,” Merrill’s chief Japan FX/Equity strategist, Shusuke Yamada, said in the statement.

“It seems stabilization of the global equity market and a weaker Japanese yen may be needed for global interest to return.”

The balance of fund managers who said they had taken out protection against a sharp drop in equity markets rose to net -30% from net -50% in January, a record one-month jump, according to Merrill.

The fund manager survey was conducted Feb. 2 to 8 among 196 panelists with $575 billion in assets under management.

February’s respondents said they expected that S&P bull market to peak on average at 3,100. In the January survey, investors expected a top in equity markets in 2019 or beyond.

An inflation-induced bond crash remained investors’ top concern in February, with 45% saying it was the biggest tail risk. The top three tail risks also included a policy mistake by the U.S. Federal Reserve/European Central Bank, cited by 18%, and market structure, cited by 13%.

Long FAANG (Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet) + BAT (Baidu, Alibaba and Tencent) was the most crowded trade in February, according to 26% of managers, the same percentage as last month. Twenty percent cited short U.S. dollar, while 18% said short volatility was the most crowded trade.

Seventy percent of investors polled believed that the global economy was in the “late cycle,” the highest level since January 2008.

Only 5% of fund managers in the survey said global interest rates would be lower in the next year; 80% expected them to rise.

A record net 24% of respondents said global corporate balance sheets were overleveraged. Merrill said the net percentage who would like to see companies return cash to shareholders remained close to 2009 lows.

— Check out Threats to Fed’s Independence Fuel Market Volatility: David Kotok on ThinkAdvisor.