Money managers are increasing their cash holdings and reducing allocations to higher-risk assets, amid expectations of a U.S. rate hike said Bank of America Merrill Lynch’s monthly fund manager survey.
A net 80% of managers expect a rise in short-term interest rates, the highest reading since May 2011.
June’s survey also revealed managers’ concerns about a Greek default and Chinese equity bubble. The majority of respondents (57%) expect a Greek default while a net 69% believe China’s equity market is in a “bubble.”
Accordingly, managers’ cash levels rose to 4.9% of their portfolios in June, the highest level since January and up from 4.5% in May, while the number of managers overweight equities fell to a net 38% from a net 47% in May.
Regionally, however, managers’ sentiments varied. A net 10% of global managers reported being underweight U.S. equities, down from a net 19% underweight last month, while a net 46% reported being overweight eurozone equities, down from a net 49% last month, and a net 18% were underweight emerging markets equities, up from a net 6% last month.
Managers’ sentiment toward bonds and commodities, on the other hand improved in June. A net 58% and 11% of managers reported being underweight bonds and commodities, respectively, compared to a net 60% underweight and net 14% underweight, respectively, last month.
“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” said Michael Hartnett, chief investment at BofA Merrill Lynch Global Research, in a news release on the results.
The survey of 207 managers with a total of $562 billion in assets under management was conducted June 5-11.