Money managers are positioned for "secular stagnation," said Bank of America Merrill Lynch's monthly fund manager survey released Wednesday.
Of the managers surveyed, 66% expect a "low-growth, low-inflation" backdrop for the global economy over the next 12 months, the highest level since October 2016.
Only 6% of managers surveyed expect a global economic recession this year, while 7 out of 10 do not anticipate a recession until the second half of 2020 at the earliest.
Of the managers surveyed, 86% do not believe that the inversion of the U.S. Treasury yield curve signals an impending recession.
A little more than half of respondents (53%) think the Federal Reserve is finished increasing interest rates this cycle, up 15 percentage points from last month. Meanwhile, only a net 13% of managers surveyed expect higher global short-term rates, the lowest level since 2012.
The average cash balance remained flat at 4.6% in April, while the allocation to cash fell 14 percentage points to a net 26% overweight, a 14-month low. However, the allocation to global equities rose 14 percentage points from March to a net 17% overweight, the largest increase since December 2016.
European equities allocation rose 8 percentage points from last month to a net neutral. The U.K. is the least favored region among surveyed managers, with a net 28% of respondents underweight. Emerging markets, on the other hand, remain the most favored, with a net 34% of managers overweight.
With just a little more than a net 20% of respondents putting a possible trade war at the top of a list of concerns, it just edges out a slowdown in China (20%) as the biggest tail risk for managers, followed by monetary policy impotence (18%) as third on the list of top concerns.
"Investors added a bit of cyclical risk this month but are still firmly positioned for secular stagnation," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results.
Mr. Hartnett added: "They are long assets that outperform when growth and rates fall, like cash, (emerging markets) and utilities, while short assets that require higher growth and rates, such as equities, the eurozone and banks."
The survey of 239 money managers representing a total of $664 billion in assets under management was conducted April 5-11.
