Money managers "are well-hedged but not positioned for a breakdown in trade talks," said a news release about Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
Of the managers surveyed, more than one-third (34%) have taken out protection against a sharp fall in equity markets over the next three months, the highest level in survey history.
A net 5% of managers expect global growth to weaken over the next year, while two-thirds of those surveyed do not expect a global recession until the second half of 2020 or later.
Very few investors are positioned for a sharp rally in interest rates. Seven out of 10 managers say they expect interest rates to be within the expected range over the next year (between 2% and 3%), while only 4% of those surveyed expect yields to return to below 2%.
The average cash balance remained flat at 4.6% for the third month in a row, while the allocation to cash rose 7 percentage points to a net 33% overweight. However, the allocation to global equities dropped 6 percentage points to a net 11% overweight.
Emerging markets remained the most favored region, with a net 34% of managers overweight. The U.K., meanwhile, was the least favored region among surveyed managers, with a net 28% underweight. The allocation to bonds stayed at a seven-year high of a net 34% underweight, as dovish central banks and a risk-off sentiment drove down interest rates.
Thirty-seven percent of respondents put a trade war at the top of their list of concerns for the 11th time in 12 months, followed by a slowdown in China (16%) and U.S. politics (12%) as third on the list of biggest tail risk for managers.
"Investors are well-hedged but not positioned for a breakdown in trade talks," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "Investors see little reason to 'buy in May' unless the 3Cs — credit, the consumer and China — quickly surprise to the upside."
The survey of 250 money managers representing a total of $687 billion in assets under management was conducted May 3-9.