Bank of American Merrill Lynch's September fund manager survey found that investors' average cash balance dipped to 4.8% from 4.9% in August, still above the past 10-year average of 4.5%.
As a result, the fund manager survey cash rule remains in buy territory.
This 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 share of investors taking out protection against a correction in equity markets experienced the largest monthly increase in 14 months, up nine percentage points to 73%.
Investors' optimism over global growth continued its steep slide, sagging to just 25% of survey respondents expecting a stronger economy in the next 12 months, compared with 62% at the beginning of the year.
Fifty-four percent of investors in the poll cited volatility as the most undervalued asset, followed by 15% who said sterling and 10% who cited oil.
Long Bitcoin was considered the most crowded trade in September, cited by 26% of fund managers. It displaced long Nasdaq, cited by 22% of investors, which had been the most crowded trade for four consecutive months. The cryptocurrency was trading near $5,000, up 344% for the year to date.
Short U.S. dollar was the third most crowded trade, mentioned by 21% of investors. As recently as March, long U.S. dollar was the most crowded trade in the survey.
Thirty-four percent of investors said North Korea was the biggest tail risk to markets, way up from 19% who expressed this concern in August. Merrill said this result tallied with a drop in Japan equity exposure in September: net 12% overweight, down from net 20% overweight last month.
