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BofA Merrill Lynch July Fund Manager Survey finds cash is king as investors walk the line

According to BofA Merrill Lynch July Fund Manager Survey, average cash balance dips to 4.9% from 5.0% last month, still above the 10-year average of 4.5%; investors note they are overweight cash due to their bearish view on the markets (25%) and preference for cash over low-yielding assets (20%)

  • Average cash balance dips to 4.9% from 5.0% last month, still above the 10-year average of 4.5%; investors note they are overweight cash due to their bearish view on the markets (25%) and preference for cash over low-yielding assets (20%)
  • Net percentage of investors surveyed who say global monetary policy is “too stimulative” continues to climb (net 48%), the highest number since April, 2011
  • Investors consider a crash in global bond markets (28%) and a policy mistake by the Fed/ECB (27%) to be the biggest tail risks to the market
  • The impact of the Fed balance sheet reduction in 2017 will be a non-event, say 42% of investors surveyed; 31% see it as a risk-off event, sending yields up and stocks down
  • Expectations that corporate profits will improve falls to net 41%, the lowest level since the US election; regarding earnings, net 22% of investors surveyed do not see a substantial improvement over the next 12 months
  • Long Nasdaq tops the list for the third month in a row when fund managers are asked about the most crowded trade, holding steady at 38%
  • Allocation to US equities falls to net 20% underweight; the last time investors were more underweight US stocks was in January, 2008
  • Investors are becoming skeptical about further improvements in Europe: net 51% expect the European economy to strengthen over the next 12 months, down from net 61% last month
  • Japan equity allocation rises sharply to net 18% overweight, from just net 1% overweight last month

“Fund managers’ biggest fears are a shock coming from bond markets or central banks,” said Michael Hartnett, chief investment strategist “Too many investors see the Fed as a likely negative catalyst.”

Ronan Carr, European equity strategist, added that, “investors expect Eurozone inflation to rise and find monetary policy too stimulative, putting the ECB’s signalling powers to the test.”

Next Finance 21 July
P.S.

Note: BofAML’s July Global Fund Manager Survey was conducted July 7-13; 207 panellists with $586bn AUM participated total. 179 participants with $525bn AUM responded to the Global FMS questions and 96 participants with $211bn AUM responded to the Regional FMS questions.

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