Investors hold most amount of cash since November 2001: BofA-ML Survey

Investors are holding most amount of cash since November 2001 shows Bank of America Merrill Lynch Global Fund Manager Survey (BofA-ML FMS). Global investor’s cash level in the portfolio are currently pegged at 5.6%, which is highest in past 15 years as many have opted for capital protection amid global market volatility.

An overall 198 panelists with $591 billion in asset under management (AUM) participated in the Bank of America Merrill Lynch Global Fund Manager Survey, which also suggest an unambiguous ‘buy’ signal. According to BofA-ML FMS cash rule, when average cash balance rises above 4.5% a contrarian buy signal is generated for equities, and when cash balance falls below 3.5% a contrarian sell signal is created.

The survey showed that investors want capital preservation, as evidenced by the rotation into cash, bonds and defensive stocks such as telecoms, while reducing positions in the financial sector and equities.

Investors have also reset expectations for lower macro and market environment, according to the survey, and see recession as risk instead of reality, with 16% of investors expecting a weaker economy over next 12-months, the most negative reading since December 2011.

On expectations for the US Federal Reserve interest rate path, about 23% expect no interest rate hike in 2016, while 33% expect one hike and 34% see two hikes.

Global growth and profit expectations are both negative for 1st time since July 2012, while China’s growth expectations are lowest since December 2008, according to the survey,

Michael Hartnett, chief investment strategist at BofA-ML said “Investors have "reset" expectations for macro and markets lower and see default/recession as risk rather than reality.”

Among the other findings from the BofA-ML survey are - net overweight positions in equities have fallen sharply to 5% from January’s 21%, while bullishness for bonds is growing. Long US dollar remains the most crowded trade, followed by shorting oil and shorting emerging markets.