Money managers have been increasing cash holdings to levels not seen since the financial crisis over volatility concerns and unease about China's equity markets.
More cash on hand also will allow managers to move nimbly into potentially attractive deals stemming from those concerns.
BofA's monthly fund manager survey conducted from July 2 to July 9 showed managers are increasing their cash holdings because of a weaker global economic outlook. Average cash holdings of the 149 managers who responded jumped to 5.5%, up from 4.9% in June and 4.5% in May, a level the survey's authors say is the highest since December 2008 during the financial crisis.
That 5.5% equates to roughly $22 billion in cash among the responding managers, who reported a total of $399 billion in assets under management.
The jump in cash holdings, according to the survey, is because of an overall drop in confidence among managers that the global economy will strengthen over the next 12 months. China is driving much of that mood, with 71% of respondents saying they believe that China's equity markets are in a “bubble.”
Brian Leung, global investment strategist at Bank of America Merrill Lynch, said in an e-mail that additional factors causing managers to increase their cash holdings include worries about illiquidity, leverage and overvaluation, the return of equity and bond volatility, and the prospect of higher rates and diminishing policy support.
Data from eVestment LLC, Marietta, Ga., show that 413 managers had cash reserves in 818 large-cap equity strategies as of March 31, 2015, up from the 400 managers with cash in 764 large-cap strategies at March 31, 2014.