Investors Retreat from Risk (Again)

(May 13, 2014) — Asset allocators have amassed their second largest cash piles since the financial crisis, a monthly survey has shown.

The Bank of America Merrill Lynch Fund Manager Survey said its respondents had liquidated their securities into the biggest cash holdings since June 2012, which was the post-crisis pinnacle of cash-hoarding.

“Investors are showing belief in the economy but with two big question marks: Are we on the brink of a disruptive event? And why, at this point in the cycle, isn’t this recovery stronger?” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Average cash levels have reached 5% of portfolios up from 4.8% in April. A net 22% said they were taking below normal levels of risk in May, up from 11% a month ago.

Asset allocation strategies echoed market sentiment too. The biggest positive swings within equity markets were towards utilities and energy stocks, with a net 15% of investors increasing their allocations to these more defensive sectors. A net 14% of investors scaled back positions in banks, and a net 8% reduced holdings in technology.

This risk-adversity may not stick around too long, however. A net 66% of respondents said they expected the global economy to strengthen in the coming 12 months, up from a net 62% in April, but some areas are set to do better than others, they believed.

Europe is most in favour, a net 28% said they most wanted to overweight that region in the coming 12 months, up from a net 23% a month ago. A net 14% considered European equities to be undervalued.

The opposite was true for the US. A net 18% said it was the region they most wanted to underweight, up from a net 9% in April.

Related content: European Gloom Dampens Global Positive Risk Appetite & De-Risking Drive Leads to Alternatives and Real Assets Push