Investors remain overweight assets that outperform in periods of low growth and low rates, according to Bank of America Merrill Lynch’s September global fund manager survey. Pollsters saw no signs of a rotation into value assets, which are geared toward rising interest rates and earnings.

Recession concerns continued to dampen investors’ risk appetite, as 38% of survey respondents said they expected a recession over the next year, up four percentage points from August and the highest net recession risk since August 2009.

Fifty-nine percent said a recession was unlikely, down five points from last month.

Asked about the inversion of the two-year/10-year U.S. Treasury yield curve, 64% of those surveyed said an inversion did not portend a recession in the next year.

“We remain contrarian bullish, as this month investors have shown only a modest improvement in risk appetite,” Merrill’s chief investment strategist Michael Hartnett said in a statement. “Fiscal stimulus would boost investor optimism.”

Investors cited German fiscal stimulus, a 50 basis-point rate cut by the Federal Reserve and Chinese infrastructure spending as the policies that would be most bullish for risk assets over the next six months.

On the U.S. front, investors in the survey identified infrastructure spending as the area of economic policy with the most bipartisan support on Capitol Hill.

The survey was conducted Sept. 6 to 12 among 235 panelists with $683 billion in assets under management.

Allocations

Fund managers’ cash levels fell to 4.7% from 5.1% in August, well off the June high of 5.7% and just above the 10-year average of 4.6%. Investors’ cash allocation fell two points to 39% overweight, still well above the long-term average, according to Merrill.

The fund manager cash rule, which has now been in “buy” territory for 19 months, 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.

Allocation to global equities continued its slow rebound, rising eight points from last month to net 4% underweight. In June, allocation to equities hit its lowest point since March 2009.

The U.S. jumped into the top spot as equity investors’ most preferred region in September after rising 15 points to net 17% overweight, the biggest monthly increase in 16 months.

The U.S. replaced emerging markets, where allocations fell two points month over month to 11% overweight. Merrill noted that emerging markets equities have been on a downward trend since peaking in March.

Bond allocations fell 14 points in September to net 36% underweight after hitting their highest allocation last month since September 2011.

As for valuations, net 41% of fund managers surveyed considered the Euro cheap, down eight points from last month and the lowest level since 2002. Net 46% of investors said the British pound was undervalued, down 19 points from August to the lowest level in the survey’s history.

With 40% of fund managers weighing in, trade war concerns held firmly at the top of the list of tail risks. Monetary policy impotence and a bond market bubble came in at 13% each, and a China slowdown rounded out the top four at 12%.

To many investors, the trade war seems intractable. Thirty-eight percent of those surveyed said the U.S./China trade war was the “new normal” and would not be resolved. Thirty percent said they expected a resolution would be found before the November 2020 U.S. presidential election.

Thirty-eight percent of fund managers put long U.S. Treasuries at the top of the list of the most crowded trades, ahead of 30% who said long U.S. tech, another 30% who cited growth stocks and 12% who said long gold.

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