That indicates they’re pessimistic about financial markets, as investors often hold cash as an alternative to stocks and bonds.
Stocks and bonds have tumbled this year, and fund managers apparently feel that more trouble could be coming.
Bank of America’s monthly fund manager survey shows that its financial market stability risks indicator has hit a record high in May.
In another apparent sign of concern about financial markets, fund managers have their highest cash levels since September 2001. When stock and bond market are volatile, investors often turn to cash as an alternative.
The S&P 500 index has suffered a negative total return of 15% so far this year, and the Bloomberg U.S. Aggregate Bond Index has a negative total return of 10%.
Fund managers have the biggest underweighting for stocks since May 2020. And they have the largest short exposure to technology stocks since August 2006, the survey says.
Further Downside
“Stocks are prone to imminent bear rally, but the ultimate lows have not yet been reached,” Bank of America strategists said, expressing their own view in a summary of the survey.
As for the economy, fund managers’ global growth optimism has hit an all-time low, and stagflation fears are the strongest since 2008.
To be sure, 68% of respondents expect inflation to fall in coming quarters. U.S. consumer prices soared 8.3% in the 12 months through April.
Fewer and fewer fund managers (34%) expect bond yields to rise, but 78% expect short rates to rise. Both short- and long-term yields have jumped so far this year.
Fund managers say the No. 1 risk for financial markets is hawkish central banks, and No. 2 is recession.
Fund Manager Allocations
In addition to cash, fund managers are “very long” commodities, healthcare stocks and staples stocks. In addition to technology stocks, managers are very short stocks in general, Europe and emerging markets.
For your own cash holdings, if you definitely won’t need the money imminently, you might consider Treasury bills. They yield more than many money-market funds.
The three-month Treasury yield recently totaled 1.18%, the six-month Treasury yielded 1.55%, the nine-month Treasury yielded 1.92% and the one-year Treasury yielded 2.2%
When it comes to technology companies, the venture capital market is pulling back from its surge of recent years. Investors are less willing to pump money into money-losing companies with uncertain prospects now that the stock market has come back into earth.
The volume of venture capital investments slipped 26% in the first quarter from the fourth quarter, according to PitchBook, as cited by The Wall Street Journal. Some investors say they are considering only one-third to half the number of deals they mulled in 2021, The Journal reports.
