Fund managers go for cash, amid stagflation and bond-crash worries, BofA says

Fund managers pushed their cash positions to their highest level since 11 September amid angst about possible stagflation and a bond crash, according to the results of a widely-followed survey.

With inflation expectations at 16-month highs, stagflation fears were at their worst since April 2013, Bank of America-Merrill Lynch's October survey of fund managers showed.

Thus, 5.8% of portfolios were now in cash, the same level as that following Brexit and 11 September, while asset allocators were no longer 'underweight' commodities and were holding their largest emerging market equity allocation in three-and-a-half years.

Both of those investments were inflation hedges, BofA noted.

Banks registered their biggest increase in allocation in two years, alongside a rise - to the most since March 2014 - in the percentage of those expecting the euro to strengthen.

Investors' perception of developed market equity and bond valuations were also at record highs, Michael Hartnett, Brian Leung and Jared Woodard said in a research note sent to clients.

According to the Fund Manager Survey, investors were expecting Treasury yields to turn into the main driver of equities over the following six months, with 76% judging that bond prices had become too frothy.

The highest percentage since June 2014 also expected the yield curve to steepen, leaving the 'top 3' crowded trades - 'long' high-quality stocks, 'long' investment grade bonds and minimum volatility strategies - at risk from a 'bond-crash', BofA-Merrill Lynch said.