Money managers are increasing their cash holdings and lowering equity allocations amid concerns that global fiscal policy is too restrictive, said Bank of America Merrill Lynch’s monthly fund manager survey released Tuesday.
Average cash holdings increased to 5.8% of managers’ portfolios in July, the highest level since November 2001 and up from 5.7% in June. The survey also found that a record net 44% of managers think global fiscal policy is currently too restrictive, up from a net 35% last month, and 39% expect a major central bank to adopt a “helicopter money” policy in the next year, up from 27% last month.
At the same time, global equity and European equity allocations fell to a net 1% underweight and 4% underweight this month, respectively, down from a net 1% overweight and 26% overweight last month. It is the first underweight readings in four years for global equity and three years for European equity.
Meanwhile, Japanese equity and U.K. equity allocations fell to a net 7% underweight and 27% underweight, respectively, compared to a net 6% underweight and 23% underweight in June. U.S. equity and emerging markets equity allocations improved to a net 9% overweight and 10% overweight, respectively, up from a net 15% underweight and 6% overweight last month. July’s Japanese equity reading marks the lowest allocation in 3½ years; the U.S. equity reading marks the first overweight reading in 17 months, and the emerging markets reading marks the highest allocation in 22 months.
Other significant findings from the July survey include:
- Investors said the U.K. is the region they are most likely to underweight over the next year. The U.K. voted June 23 to leave the European Union.
- Commodity allocations improved to a net 4% underweight, the highest reading since February 2013 and up from a net 12% underweight in June.
- A net 2% of investors surveyed expect a stronger economy in the next 12 months, down from a net 23% last month, and a net 4% believe global profits will deteriorate over the next year, down from last month’s net 10% thinking they would improve.
- A net 50% of investors expect a higher global consumer price index over the next year, the lowest reading in four months.
- Managers believe geopolitical risk is the biggest risk to financial market stability (59%), followed by protectionist risk (52%) and business cycle risk (48%).
“Record numbers of investors saying fiscal policy is too restrictive and the first underweighting of equities in four years suggest that fiscal easing could be a tactical catalyst for risk assets going forward,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release.
The survey of 195 money managers representing $537 billion in assets under management was conducted July 8-14.