Fund managers are holding cash due to bearish views and fears of a crash in global bond markets, according to the latest Global Fund Manager Survey from Bank of America Merrill Lynch.
The survey of global fund managers found the average cash balance dipped to 4.9 per cent from 5.0 per cent last month, but was still above the 10-year average of 4.5 per cent, with a quarter per cent of investors overweight cash and 20 per cent preferring cash over low-yielding assets.
Citing their concerns, almost half of those polled said global monetary policy is too stimulative, with policy mistakes from the US and European central banks named by a third as among the biggest tail risks.
A similar number consider a crash in global bond markets the biggest danger.
There is little expectation that corporate profits will improve with only 41 per cent believing so, the lowest level since the US election.
A fifth of the professional investors asked do not see a substantial improvement in earning over the next 12 months.
According to the fund managers surveyed, 20 per cent are underweight US equities which is the lowest since January 2008 while Japan equity allocation rose sharply to 18 per cent overweight, from just 1 per cent overweight last month.
Michael Hartnett, chief investment strategist at BoA Merrill Lynch, said: “Fund managers’ biggest fears are a shock coming from bond markets or central banks. Too many investors see the Fed as a likely negative catalyst.”
In Europe meanwhile investors are becoming sceptical about future prospects, according to fund managers, with 51 per cent expecting the European economy to strengthen over the next 12 months, down from net 61 per cent last month.
Ronan Carr, european equity strategist at BoA Merrill Lynch added: “Investors expect Eurozone inflation to rise and find monetary policy too stimulative, putting the European Central Bank’s signalling powers to the test.”
Kay Ingram, director of strategy at LEBC said: “The impact of rising interest rates and unwinding of quantitative easing (QE) in developed markets is concerning. It has consequently shortened the average duration of its corporate bond holdings to protect investors from any cliff edge reactions to the next upward rate revision.
“We have also remained underweight in US equities and are recommending taking profits from the high-tech sector which is trading at historic highs.
"While the unwinding of QE in Europe and sensitivity to remarks made by ECB officials may make European markets jumpy, we believe that selective investment in the stronger northern European markets and avoiding the financials in southern Europe will still give investors fair value and we remain overweight in Europe in our growth portfolios.
"While UK based investors have benefitted from the overseas earnings of FTSE 100 companies boosted by sterling weakness, the short to medium term consequences of Brexit could lead to dislocation of trade and holdings in more politically stable European markets could provide a hedge against the immediate downsides of Brexit.”
