Unsurprisingly, a survey of what fund managers around the world think showed that they are moving into cash, rotating into more safe-haven investments, and are trimming their outlook for growth in light of geopolitical events.

Fund managers took risk off the table and parked money in cash during March as the Middle East conflict erupted, ending a “bull market” mindset of recent months, according to a monthly barometer from Bank of America.

The bank’s Global Fund Manager Survey (FMS) found that average cash levels as a share of total portfolios rose to 4.3 per cent – the largest jump since the start of the pandemic in March 2020. In February, the cash position was 3.4 per cent, not far from a record low of 3.2 per cent in January. The bank said cash levels feed into the BofA Bull & Bear Indicator, giving a reading of 8.5 in March from 8.7 in February.

A total of 210 panellists with $589 billion of assets under management took part in the survey, conducted from 6 to 12 March.

In other findings, 46 per cent of FMS respondents cited “no landing” as the most likely result for the global economy, while 44 per cent expect a “soft landing.” While investors are more bearish today, the bank said, only 5 per cent expect a “hard” landing for the economy.

The dramas in the Gulf region since US/Israeli forces attacked the Iranian regime, triggered by the Strait of Hormuz being closed and worries about energy supplies, have come when equity valuations in the US, for example, had already been high, partly driven by the rise of AI-linked companies. There have been concerns about a market that looks potentially frothy and vulnerable to adverse news. In such an environment, FMS respondents tilted away from possible rate cuts amidst worries about inflation, as reflected by a steepening of the US bond yield curve. A net 56 per cent of respondents (based on a balance of responses) predict the yield curve from three-month paper to 10-year Treasuries to steepen, contrasting with 80 per cent taking that view in February.

Elsewhere, 38 per cent of survey respondents said they think AI stocks resemble a bubble, but 51 per cent disagreed.

FMS respondents have pulled in their hopes for global growth this year – a net 7 per cent are optimistic (when pessimism is subtracted from optimism) versus a net 39 per cent in February.

Geopolitics and inflation have replaced AI bubble worries as the largest “tail risks” and the private equity/credit sectors are seen as posing the most likely systemic credit event outcome. (In this case, “tail risk” is the increased probability of rare, extreme, and unexpected investment losses that occur far from the average outcome in a probability distribution.)

The survey also showed that fund managers were moving from cyclical “boom” sectors such as banks to more defensive, or even “stagflation” areas such as staple industries.