The potential downsides of a Donald Trump presidency have begun to weigh on the minds of fund managers around the world, with the two biggest headwinds identified by the cohort in January linked to the Republican.
When asked to identify the biggest "tail risk" facing them, 29 per cent of those answering Bank of America Merrill Lynch's (BAML) January Global Fund Manager Survey (FMS) pointed to a trade war or protectionism, while 24 per cent mentioned a US policy error.
This was the first time either risk had appeared on the survey, showing a sharp change in attitude among fund managers since December, as they accounted more for the risks posed by a radically different presidency.
China also appeared to remain among manager concerns, with 15 per cent believing a Chinese currency devaluation or property bubble presented the largest risk.
According to the survey this explained the caution still evident among investors, with many positioning for stronger growth and inflation under Mr Trump's regime but "few willing to turn max bull and slash cash".
Global growth expectations improved to two-year highs, with net 62 per cent of respondents expecting a stronger economy in the next 12 months, up from net 57 per cent in December. Similarly, global inflation expectations remained "elevated", at the fifth-highest reading on record.
Despite stronger growth and inflation expectations from managers - the survey found that cash levels had risen, from 4.8 per cent in December to 5.1 per cent - as caution crept back into manager strategies.
Cash allocations peaked earlier in 2016 following on from the UK's referendum and uncertainty around the US election - but then started to reduce towards the end of the year.
“Ahead of the US presidential inauguration investors are positioned for stronger growth and inflation, but are not willing to turn fully bullish with China-related risks on the horizon,” said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.
One of the largest asset allocation changes witnessed over the month saw a strong shift in sentiment in favour of eurozone equities, with allocations from global fund managers rising from net 1 per cent underweight in December to net 17 per cent overweight, this month.
This came mainly at the expense of emerging market stocks, and commodities after a bullish run into the end of 2016.
This was match with more local bullish sentiment. In the European FMS, a net 64 per cent said Europe would be economically stronger over the next year, a rise from 33 per cent in December.
