The investor sentiment among most money managers is bearish as growth and profit expectations plunged to February 2016 lows, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
Managers' global equity allocations fell 14 percentage points to a net 19% overweight, the lowest level since November 2016. Meanwhile, U.S. equity allocations rose 8 percentage points to 9% overweight, the highest since February 2017, having been 28% net underweight in September 2017.
This month's survey saw an 8-percentage-point drop in allocations to eurozone equities, leaving allocations to the asset class at a net 12% overweight, the lowest level since December 2016. Plus, the largest monthly drop in emerging market equities in two years brings that allocation down 23 percentage points to net 1% underweight.
Managers' allocations to U.K. equities rose 3 percentage points to net 18% underweight, its highest level since February 2016.
The average cash balance dipped to 4.7% in July from 4.8% in June, still above the 10-year average of 4.5%.
A trade war remains the biggest tail risk cited by respondents (60%), with investor conviction the highest since concerns surrounding European Union sovereign debt funding in July 2012. The top three tail risks are rounded out by a Federal Reserve/European Central Bank hawkish policy mistake (19%) and a euro/emerging markets debt crisis (6%).
A net -11% of survey respondents expect faster global growth in the next 12 months, down 12 percentage points from last month and the lowest level since February 2016. When asked their expectations for global profits, a net 9% of respondents indicated they do not expect an improvement in the next 12 months, down 53 percentage points from the beginning of the year and the lowest level since February 2016.
Meanwhile, a net 11% of those surveyed do not think corporate earnings will improve by 10% or more over the next year, significantly down from a net 35% thinking they would this past February.
Allocation to tech rebounded 10 percentage points to a net 33% overweight, making it the most favored sector this month. Manager allocation to banks dropped 17 percentage points to a net 3% overweight, totaling a 33-percentage point drop in banks allocation over two months.
Allocation to commodities remained near the eight-year high from last month, dropping 1 percentage point to a net 6% overweight.
"Investor sentiment is bearish this month, with survey respondents eyeing the risks from a possible trade war," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "Equity allocation has fallen notably while growth and profit expectations have slumped."
The survey of 231 money managers representing a total of $663 billion in assets under management was conducted July 6-12.