Money managers are reducing their cash holdings amid improved global growth expectations, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
A net 23% of investors expect a stronger global economy over the next year, up from a net 2% last month. At the same time, average cash holdings dropped to 5.4% of managers' portfolios in August down from July's high of 5.8%.
“Central banks' creation of a low and stable rates environment is a big factor driving fresh optimism and a preference among fund managers for deflation assets over inflation assets,” according to a BofA news release on the survey results. “Only 13% of respondents expect the Bank of Japan or European Central Bank's negative interest rate policy to end within the next 12 months.”
Global equity and U.S. equity allocations rose to net overweights of 9% and 11%, respectively, in August, up from a net 1% underweight and a net 11% overweight last month, respectively. This month's global equity allocation is the highest reading since April. The U.S. equity allocation is the highest reading since January.
Meanwhile, U.K., Japanese and emerging markets equity allocations improved to a net 21% underweight, a net 1% underweight and a net 13% overweight, respectively, up from a net 27% underweight, a net 7% underweight and a net 10% overweight last month. The emerging markets equity allocation is the highest reading since September 2014.
Other findings include:
- A net 11% of managers think global profits will improve over the next 12 months compared to a net 4% of managers that said profits would deteriorate last month.
- A record net 48% of investors think global fiscal policy is too restrictive.
- European Union disintegration was cited as the biggest tail risk by 22% of managers, followed by renewed China devaluation at 18% and U.S. inflation at 16%.
“Investors are less bearish, but sentiment has yet to shift from 'fear' to 'greed'. As such, we expect stock prices to rise further until bonds throw another tantrum,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in the news release.
The survey of 211 money managers representing $628 billion in assets under management was conducted Aug. 5-11.