Most investors remain bearish on the economy despite the recent rally in equity markets, as shown by cash allocations being the most overweight since the global financial crisis, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
A net 46% of surveyed investors this month expect global growth to weaken over the next 12 months, down from 60% the previous month. Meanwhile, 55% of investors are saying they expect secular stagnation over the next year, up from 14% in January.
This month saw a slight uptick in inflation expectations, with a net 21% expecting the global consumer price index to rise over the next year, up 2 percentage points from January. Last month saw the second biggest two-month collapse in inflation expectations on record, down 51 percentage points to just a net 19%.
After improving in January to a net 18% overweight, allocations to global equities dropped 12 percentage points to just a net 6% overweight, the lowest level since September 2016.
This month's survey saw investors move from equities into cash, bringing the cash allocation to a net 44%, up 6 percentage points from January, the biggest overweight since the middle of the global financial crisis in January 2009.
Fixed income, meanwhile, saw its allocation climb 6 percentage points for February to a net 36% underweight; however, that was 1 percentage point lower than December's 35% underweight, which was the highest bond allocation since the U.K.'s vote to leave the European Union in June 2016.
A possible trade war remains the biggest tail risk for managers, with a net 29% of respondents putting it at the top of a list of concerns, up from the 27% that cited it as the biggest concern in January. Rounding out the top three are a China slowdown (21%) and a corporate credit crunch (12%).
The average cash balance saw a slight downtick to 4.8% from 4.9% in January.
"Despite the recent rally, investor sentiment remains bearish," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "Fund managers' positioning is still a Q1 positive for risk assets."
The survey of 218 money managers representing a total of $625 billion in assets under management was conducted Feb. 1-7.