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BofA Merrill Lynch October Fund Manager Survey shows global investor risk-aversion growing as cash allocations increase to near-15-year highs

Cash levels jumped from 5.5% in September to 5.8% this month. Investors’ average cash balance was last this high in July 2016 (post-Brexit vote) and in Fall 2001.

Investors identify fears of an EU breakup, a bond crash and a Republican winning the White House as the most commonly-cited tail risks.

With inflation expectations at a 16-month high and perceptions of developed market equity and bond valuations at record highs, investors are no longer underweight in commodities for the first time since December 2012.

Rotation out of healthcare/pharma, REITs and bonds, into banks, insurance, equities, commodities and EM.

Investors cite Long high-quality stocks, Long US/EU IG corporate bonds and minimum volatility strategies as the most crowded trades.

Allocation to EM equities rises to the highest overweight in 3.5 years, from 24% last month to 31% in October.

Allocation to U.S. and Eurozone equities is unchanged from last month, while allocation to UK equities falls to net 27% underweight from net 24%.

Allocation to Japanese equities improves modestly to net 3% underweight from net 8% underweight last month.

“This month’s cash levels indicate that investors are bearish, with fears of an EU breakup, a bond crash and Republicans winning the White House jangling nerves,” said Michael Hartnett, chief investment strategist.

Manish Kabra, European equity quantitative strategist, added that, “Although investors see an EU-disintegration as a big tail risk, European fund managers surveyed are more optimistic about the economic growth outlook for the Eurozone and expect stronger inflation.”

Next Finance , October 2016

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