Money managers are reducing their cash holdings and raising their global equity, commodities and real estate allocations, said Bank of America Merrill Lynch's latest monthly fund manager survey.
Average cash holdings declined to 5.1% of managers' portfolios in March, down from a 15-year high of 5.6% last month. Meanwhile, a net 13% of managers reported being underweight commodities, compared to 29% last month, marking the biggest monthly jump in the survey question's 10-year history.
Global equity and real estate allocations also jumped to a net 13% and 11% overweight, respectively, from 5% and 1% overweight last month.
On bonds, a net 37% of managers reported being underweight, little changed from last month's 36%. On style, a net 15% of respondents think high-yield bonds will outperform high-grade over the next 12 months, a reversal from last month when a net 13% of investors thought high-grade bonds would outperform.
March's survey also found most money managers still expect no more than two rate hikes from the Federal Reserve over the next year, while a record net 35% believe global fiscal policy is still too restrictive. “Quantitative failure” is now viewed as one of the biggest tail risks, along with a U.S. recession.
A net 11% of managers surveyed expect the global economy will strengthen over the next 12 months, the highest reading in three months. A net 1% of respondents also said global profits would improve over the next year. Last month, a net 16% of investors said the global economy would weaken over the next year, and a net 25% said global profits would decline, the most negative readings since December 2011 and August 2012, respectively.
U.S. equity, eurozone equity, and emerging markets equity allocations improved to a net 13% underweight, net 41% overweight, and net 11% underweight, respectively, compared to 19% underweight, 36% overweight, and 23% underweight in February. Meanwhile, Japanese equity and U.K. equity allocations fell to a net 15% overweight and net 20% underweight, respectively, compared to 24% overweight and 17% underweight last month.
“With cash levels now slightly above their three-year average, investors no longer are sending the unambiguous buy signal we saw last month,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release.
The survey of 209 money managers representing $591 billion in assets under management was conducted March 4-10.