Money managers rediscover appeal of cash

Money managers are increasing their cash holdings and reducing their equity allocations as concerns mount over prospects for global economy, reports Bank of America Merrill Lynch in its latest monthly fund manager survey.

BofA Merrill also finds that global investors’ allocation to emerging market (EM) equities has fallen to a record low since 2006, with money managers worried by a possible EM debt crisis and geopolitics.

Other concerns are headed by weaker growth prospects for China and the potential for this to lead to recession, the most pessimistic outlook for earnings since 2002, a challenging macro environment, the strengthening US dollar and potential higher bond yields.

The January survey found a net 8% of managers believe the global economy will strengthen over the next year, the lowest reading since 2012 and down from 29% in December. Also, more survey respondents believe global profits will decline over the next 12 months than increase, the first negative reading since October 2012.

In response, a net 38% of respondents are now overweight on cash, the highest reading since July 2012 and up from 20% in December. Also, average cash holdings rose to 5.4% of managers’ portfolios, the third highest reading since 2009 and up from 5.2% a month earlier. By contrast, a net 21% of managers now report being overweight on equities, down from 42% last month.

Despite the gloomier global outlook, only 12% of survey respondents believe that 2016 will be marked by a global recession will occur over the next year. The January survey also found the majority of respondents now expect the Federal Reserve to raise US interest rates two or more times this year. Last month, more managers expected three more rate hikes before the end of 2016.

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