Money managers are increasing their cash holdings while fears of “quantitative failure” persist, Bank of America Merrill Lynch's latest monthly fund manager survey found.
Average cash holdings rose to 5.4% of managers' portfolios in April, up from 5.1% in March, but still below February's 15-year high of 5.6%.
Also, the majority of money managers surveyed still expect no more than two Federal Reserve rate hikes in the next 12 months, and continue to view “quantitative failure” by central banks trying to revitalize economies as one of the biggest tail risks.
In the last month, global equity allocations fell to a net 9% overweight from 13% overweight, and commodities allocations dropped to a net 22% underweight from 13% underweight, April's survey found. Bond and real estate allocations remained relatively stable at a net 38% underweight and net 10% overweight, respectively, compared to 37% underweight and 11% overweight last month.
U.S. equity and emerging markets equity allocations improved to a net 10% and 8% underweight, respectively, from a net 13% and 11% underweight in March. April marks the 16th and 14th consecutive month of underweight emerging markets equity and U.S. equity readings, respectively.
Eurozone equity and Japanese equity allocations had the largest drops in the month, falling to a net 33% overweight and net 3% underweight, respectively, from 41% overweight and 15% overweight last month, marking the first underweight reading for Japanese equities since December 2012. U.K equity allocations remained unchanged with a net 20% underweighting the region.
Other findings from the global survey include:
- a net 13% and 11% of survey respondents believe the Japanese yen and the euro are overvalued, respectively, the highest readings since November 2014 and July 2015;
- a net 2% of managers believe the U.S dollar is overvalued, the lowest reading in six months;
- a net 36% of managers believe emerging markets currencies are undervalued, the highest reading since March 2013;
- a net 10% of managers expect a stronger global economy in the next 12 months, relatively unchanged from 11% last month; and
- 14% of investors think “Brexit” — the U.K. leaving the European Union — is likely.
“With valuations for bonds and equities at their seventh-highest reading in 13 years, investors may be turning to cash to protect against the downside while shunning risk assets where valuations constrain the upside. Range-based trading is likely to continue,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release.
The survey of 200 money managers representing $596 billion in assets under management was conducted April 1-7.