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Cash balances hit 15-year high as investors turn cautious

February saw a rotation towards capital preservation assets – not just cash; but utilities, bonds and telcos and a move away from banks and equities in general, as the average equity overweight position was reduced from 21% to 5%.

The February BAML Fund Manager Survey was conducted between 5-11 February 2016, with a total 165 respondents answering the global survey, responsible for $492bn (€439.4bn) under management.

Flight to safety

Within the equity space, global fund managers demonstrated a capitulation in momentum stocks, showing a flight to safety as they turned towards large-cap, quality and higher-yielding names.

A net 64% of managers said they expected high-quality stocks to outperform low quality, while net 58% said large cap would outperform small cap.

A further net 57% of respondents expect high dividend to deliver better returns than low dividend payers.

Monthly repositioning also showed a paring back of the extreme underweight to emerging market equities as well as trimming financials, European and Japanese names, healthcare and discretionary.

Negative expectations

With 19% of fund managers believing a recession is likely in the next 12 months – up from 12% on the previous month, net 28% of investors think global fiscal policy is currently too restrictive – its highest level since 2012.

That said, expectations over Chinese growth are at their lowest levels since December 2008.

Michael Hartnett, chief investment strategist at BAML, said: “Investors have ‘reset’ expectations for macro and markets lower and see default or recession as a risk rather than a reality.”

Part of the Bonhill Group.