Global fund managers' allocation to cash shot up six percentage points to net 44% overweight in February, the highest overweight since the financial crisis in January 2009, Bank of America Merrill Lynch reported Tuesday.
Investors' average cash balance dropped slightly to 4.8% from 4.9% last month, but remained above the 10-year average of 4.6%, according to Merrill's February fund manager survey.
Merrill noted that the fund manager cash rule has been in "buy" territory for 11 months. This rule holds 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.
Fund managers' allocation to global equities slumped 12 points to just net 6% overweight in February, the lowest level since September 2016, Merrill said.
The February allocation to bonds climbed six points to net 36% underweight, just a point off December's reading of 35%, the highest allocation since the Brexit vote in June 2016. Commodity allocations fell six points to net 7% underweight, notwithstanding the asset class's recent outperformance.
"Despite the recent rally, investor sentiment remains bearish," Michael Hartnett, Merrill's chief investment strategist, said in a statement. "Fund managers' positioning is still a Q1 positive for risk assets."
Merrill conducted the latest survey in early February among 218 panelists with a total of $625 billion in assets under management.
Net 46% of investors in the survey said they expected global GDP growth to weaken over the next 12 months.
Fifty-five percent of survey participants were bearish on both the growth and inflation outlook for the global economy in the coming year, up 13 points month over month. Secular stagnation is now the consensus view among global investors, according to Merrill.
