Fund managers' cash hoard biggest in July since late 2001, BofA ML survey shows

Fund managers turned outright bearish on global equities in July, stashing more money under the proverbial mattress than at any time since two months after the tragic September 11 attacks on the twin towers in New York, according to the results of a widely-followed survey.

Cash levels at fund managers rose from 5.7% in June to 5.8% in July, their highest level since November 2001, according to Bank of America-Merrill Lynch's survey of fund managers. Investors were also said to be taking out protection against a sharp decline in the stockmarket at a record pace.

In parallel, a record 44% of managers had become of the opinion that fiscal policy worldwide was too restrictive, a development which ironically might see stocks rise, BofA ML strategists said.

“Record numbers of investors saying fiscal policy is too restrictive and the first underweighting of equities in 4 years suggest that fiscal easing could be a tactical catalyst for risk assets going forward,” said Michael Hartnett, chief investment strategist at BofA ML.

Strikingly, expectations of central banks opting to use "helicopter money" also increased significantly.

The biggest risk to financial market stability was deemed to be 'geopolitical risk' followed by the possibility of protectionism.

Investors had rotated out of Eurozone, banks and insurance and into US, industrials, energy and technology and materials, the survey found.

Indeed, fund managers went underweight European stocks for the first time in three years, while Japanese stocks saw the biggest underweight allocation in three-and-a-half years.

Emerging market stocks also benefitted, with the global allocation to the asset class rising from a net 6%-overweight to 10%-overweight, a 22-month high.

To take note of, the dollar/yen was perceived to be at its most overvalued since January 2013.

The proportion of investors looking to go 'short' British shares was at a record high, BofA-ML said.