Money managers are increasing their cash holdings and reducing allocations to higher risk assets, particularly in the U.S., said Bank of America Merrill Lynch's monthly fund manager survey.
A net 21% of asset allocators reported being overweight cash in May, the highest reading in seven months and up 19 percentage points from April.
While a number of managers remain overweight global equities — a net 47% — that number is down seven percentage points from April.
Appetite for U.S. stocks, in particular, declined in May. A net 19% of respondents reported being underweight U.S. equities compared to a net 12% last month. A net 39% also said they want to underweight the region in the next 12 months.
Managers remain positive on Europe and Japan equities, however, with a net 49% and 42%, respectively, overweight the regions, up three and four percentage points from last month.
Europe also remains the region managers would most like to overweight in the next 12 months.
Managers' outlook on emerging markets also improved in May with a net 6% underweight compared to a net 18% in April.
On bonds, a net 60% of managers are underweight compared to a net 54% last month.
Also, a net 56% of managers believe fixed income is the asset class most vulnerable to volatility in 2015.
Despite these results, May's survey revealed that managers are “still structurally long assets that benefit from higher global growth, higher rates and a stronger U.S. dollar such as Europe, Japan, cyclicals, banks (and) stocks,” said BofA Merrill Lynch in a report on the results.
A net 59% of respondents expect the global economy to strengthen over the next 12 months.
“There is no loss of faith in economic recovery, and positioning still assumes that the U.S. dollar goes up, but doubts are creeping in — hence this jump in allocation to cash,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release on the results.
May's survey also found that money managers are increasingly divided over the timing of a U.S. rate hike. A net 36% expect the Federal Reserve to raise interest rates in the fourth quarter, compared to a net 45% who expect a rate hike in the third quarter.
The survey of 208 managers with a total of $607 billion in assets under management was conducted April 2-9.
