Despite investors' cash levels in July inching down to 4.9% from 5% the previous month, the level was still above the 10-year average of 4.5%, according to Bank of America Merrill Lynch's July fund manager survey.
Twenty-five percent of survey respondents said they were overweight cash owing to their bearish view on the markets, and 20% expressed a preference for cash over low-yielding assets.
The survey's cash rule says that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.
The survey, which was conducted during the second week in July, comprised 207 panelists with $586 billion in assets under management
A net 48% of investors surveyed said global monetary policy was "too stimulative," the highest number since April 2011.
Investors' concern about Chinese credit tightening as a major tail risk receded in July, with just 15% considering it a top risk, half the number in the June survey.
Twenty-eight percent of respondents in July considered a crash in global bond markets the biggest tail risk, followed by 27% who worried about a policy mistake by the Federal Reserve/European Central Bank.
"Fund managers' biggest fears are a shock coming from bond markets or central banks," said BofAML's chief investment strategist Michael Hartnett said in a statement. "Too many investors see the Fed as a likely negative catalyst."
As for the Fed's balance sheet reduction this year, 42% of investors said it would be a non-event, while 31% viewed it as a risk-off event, sending yields up and stocks down.
Thirty-eight percent of investors, the same as last month, said long Nasdaq was the most crowded trade in July.
