Money managers' average cash holdings declined to 4.4% of their portfolios in November, the lowest level since October 2013 and down from last month's 4.7%, said Bank of America Merrill Lynch's most recent monthly fund manager survey released Tuesday.
At the same time, a record net 16% of investors said they are taking above-normal levels of risk. The November survey also found that despite the falling cash levels, a record 48% of investors believe that equities are overvalued.
The biggest tail risk to markets remains a policy mistake from the Federal Reserve or European Central Bank, according to 27% of investors (compared to 24% last month); followed by a crash in global bond markets, according to 22%, and a flash crash caused by "market structure," according to 13% of investors.
Other findings from the November survey include:
- On global growth, a net 36% of investors expect a stronger global economy over the next 12 months, down from a net 41% in October, the highest level since May.
- A record 56% of investors expect above-trend growth and below-trend inflation over the next year, up from a net 48% last month. Those expecting below-trend growth and below-trend inflation fell 9 percentage points over the month to 25%, the lowest level since May 2011.
- Global equity and emerging market equity allocations rose to a net 49% overweight and a net 43% overweight, respectively, up from a net 45% overweight and a net 41% overweight last month. The global equity allocation is the highest reading since April 2015.
- U.S. equity and Japanese equity allocations rose to a net 16% underweight and a net 32% overweight, respectively, up from a net 21% underweight and a net 23% overweight last month.
- Eurozone equity and U.K. equity allocations fell in November to a net 47% overweight and net 37% overweight, respectively, compared to a net 58% overweight and net 31% underweight last month.
"Icarus is flying ever closer to the sun," said Michael Hartnett, chief investment strategist at BofA Merill Lynch Global Research, in a news release on the results. "Investors' risk taking has hit an all-time high. A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indicator of irrational exuberance."
The survey of 206 money managers representing $610 billion in assets under management combined was conducted Nov. 3-9.