Cash again drawing global investors — BofA Merrill Lynch report

Global investors flocking toward the safety of cash have pushed the average global allocation back up to equal the highest allocation of the past 15 years, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.

The average cash allocation jumped to 5.8% in October from 5.5% the previous month. The other two times the average cash allocation was that high was in July following the U.K.'s vote to leave the European Union and in the fall of 2001.

When asked what they consider the biggest tail risk, 20% of respondents — the largest single response — cited a potential European Union breakup.

“Although investors see an EU disintegration as a big tail risk, European fund managers surveyed are more optimistic about the economic growth outlook for the eurozone and expect stronger inflation, Manish Kabra, European equity qualitative strategist at Bank of America Merrill Lynch, said in a news release about the report.

The other most commonly cited tail risks were a bond market crash (18%), a Republican victory in the U.S. presidential race (17%) and U.S. inflation (12%).

Managers' global equity allocations rose to a net 11% overweight in October, a seven-month high, and above the net 1% overweight in September.

Meanwhile, Japanese equity allocations rose to a net 3% underweight from 8% underweight the previous month, and the allocation to U.K. equities fell to a net 27% underweight from a net 24% net underweight.

Managers' eurozone equity allocations remained the same in October as the previous month, a net 5% overweight, and the allocation to U.S. equities also remained unchanged, at a net 7% underweight.

The survey's other key findings include:

  • Commodities rose to a neutral weighting in October, the first time since December 2012 that commodities as measured by the survey are not underweight.
  • Emerging markets equities rose to its highest overweight in 3˝ to 31% in October, up from 24% the previous month.
  • Among individual sectors, there is a rotation out of bonds, health care/pharmaceuticals and real estate investment trusts.

The survey of 213 money managers representing $563 billion in assets under management was conducted Oct. 7-13.