BofA Merrill Lynch February Fund Manager Survey shows investor anxiety but does not give the all clear to buy the dip

• Fund managers are rotating into cash and out of equities, reducing risk and cyclicality

• Average cash balance rises to 4.7% this month, up from 4.4% in January

• Allocation to equities fell to net 43% from net 55% overweight, the largest one-month decline in two years; allocation to bonds now at a record low of net 69% underweight

• Respondents indicate this S&P bull market will peak on average at 3100

• An inflation-induced bond crash (45%) remains at the top of the list of tail risks cited by investors; the top three are rounded out by a policy mistake by the Fed/ECB (18%) and market structure (13%)

• Long FAANG+BAT (26%), Short USD (20%) and Short Volatility (18%) are considered the most crowded trades

• A majority of investors surveyed (70%) now believe the global economy is in the “late cycle,” the highest level since January, 2008

• Only 5% of fund managers surveyed say global interest rates will be lower in the next year; 80% expect them to rise

• A record net 24% of investors surveyed say global corporate balance sheets are overleveraged; the net percentage that would like to see companies return cash to shareholders remains close to 2009 lows

“While this month’s survey shows that investors are holding on to more cash and allocating less to equities, neither trait moves the needle enough to give the all clear to buy the dip,” said Michael Hartnett, chief investment strategist.

“European equity allocation is at its lowest in almost a year,” said Manish Kabra, head of European quantitative equity strategy. “Despite improving confidence in European earnings, the US and Emerging Market profit cycles seem more favourable to investors right now,” he added.

“The Japanese market exhibited sensitivity to global risk sentiment in the recent market sell-off,” said Shusuke Yamada, chief Japan FX/Equity strategist. “It seems stabilization of the global equity market and a weaker JPY may be needed for global interest to return.”