A record 85% of fund managers think the global economy is late in the cycle, 11 percentage points above the previous high in December 2007, according to the October Bank of America Merrill Lynch fund manager survey.

The survey found that global growth expectations slumped to their lowest levels since November 2008, after having peaked in January this year, with net 38% of investors expecting deceleration.

Merrill noted that the disconnect between fund managers’ expectations of a strong U.S. economy and a weak global economy was the widest since October 2007.

“Investors are bearish on global growth, but not bearish enough to signal anything but a short-term bounce in risk assets,” Merrill’s chief investment strategist Michael Hartnett said in a statement.

Merrill conducted the survey in early October among 231 panelists with a total of $646 billion in assets under management.

Fund managers’ cash level remained unchanged month over month at 5.1%, well above the 10-year average of 4.5%, as investors stayed bearish.

The fund manager 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.

The cash rule has been in “buy” territory for the past eight months, Merrill noted.

Survey respondents said the U.S. dollar was very overvalued, especially against emerging markets currencies. Fifty-one percent maintained that the latter were undervalued, the cheapest valuation in the survey’s history, according to Merrill.

Net 35% of investors said they did not expect corporate earnings to improve 10% or more in the next 12 months, a reversal from net 35% who expected improvement in the February survey.

In addition, net 20% of respondents expected global profits to deteriorate over the coming year, a two-year high and a big swing from net 39% in the January survey who expected an improvement.

For the fifth consecutive month, a possible trade war was the biggest tail risk, a concern for 35% of investors, down six points from the September survey. Quantitative tightening shot up 16 points to second place on the tail risk list, worrying 31% of respondents. A China slowdown was on the minds of 16% of fund managers.

Long FAANG (Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet) + BAT (Baidu, Alibaba and Tencent) was the most-crowded trade for the ninth straight month, cited by 32% of fund managers. Short U.S. Treasuries and long S&P 500 followed at 19% and 18%.

Merrill said the “magic number” that would prompt investors to rotate from equities back into bonds would be U.S. Treasury yields of 3.7%, the highest level since the question was asked in March. It said the 3.7% referred to the average weighted midpoint of fund manager responses.

Investors’ allocation to global equities held steady at net 22% overweight, while allocation to U.S. equities reversed much of their past two months’ climb, falling 17 points to net 4% overweight.

The U.S. is thus no longer the most favored equity region globally. That advantage goes to Japan at net 18% overweight.

Allocation to bonds slipped five percentage points to net 50% underweight, still well off the record low of net 69% underweight in February.

Passive Investing and ETFs

Eighty-four percent of October’s participants responded to the fund manager poll’s new section on passive instruments and exchange-traded funds, 46% of which said they actively used ETFs within their portfolios.

Merrill said 20% (weighted average) of fund managers’ assets were allocated to ETFs. Only 14% of respondents said they invested more than 41% of their portfolios in ETFs, three points higher than the allocation of the firm’s private clients.

Eighty-four percent of investors reported that they used ETFs to gain equity market exposure, versus 8% for corporate bonds and 3% for commodities.

Seventy-six percent used ETFs to passively track broad equity market indexes. Smart beta and ESG/thematics brought up the rear at 10% and 3% usage.