The hike in cash holdings in February came as investors cast a cautious eye on the US economy, according to a monthly fund manager poll.

Average cash balances are up to 5.6 per cent this month – the highest level since November 2001, according to the BofA Merrill Lynch Fund Manager Survey for February.

As volatilities continued to rock markets worldwide, global fund managers’ growth and profit expectations turned negative for the first time since July 2012, the survey showed. Net overweight positions in equities plunged from January’s 21 per cent to 5 per cent in February, with investors becoming more bullish on bonds.

Although growth expectations for China were at their weakest since 2008, global investors deemed a recession in the US to be their biggest tail risk, ahead of a slowdown in China.

Following the long-anticipated rate increase from the US Federal Reserve late last year, 90 per cent of fund managers expect no more than two further Fed hikes in the next year, up from 40 per cent in December. It is fitting therefore that the long US dollar remains the most crowded trade. This is followed by shorting oil and shorting emerging markets.

Meanwhile, Europe remains the most preferred region globally. Global allocations to European stocks only fell to net 36 per cent overweight. A net 42 per cent of EU fund managers are now overweight cash.
 
“Investors have ‘reset’ expectations for macro and markets lower and see default/recession as a risk rather than a reality,” noted Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

The survey was carried out from 5-11 February on 198 panellists with $591 billion in assets under management.