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

• 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.”