Fund managers opt for cash over low-yielding assets, BofA says

Fund managers continued to hoard cash at a near-record pace, preferring to give low-yielding assets a wide berth, as most stuck to their 'bearish' view on the market, according to the results of a widely-followed survey.

Cash levels at fund managers were raised from 5.4% to 5.5% in September, keeping to the 4.2% to 5.8% range seen since the 2013 'taper tantrum', Bank of America-Merrill Lynch's monthly fund manager survey found.

Managers' equity allocation was unchanged but one standard deviation below the historical norm, BofA said, adding that the share of funds allocated to stocks versus cash was at levels which had historically proven to be a "good" entry point for the stockmarket.

Hedge funds' exposure to shares had jumped to its highest since the May 2013 'taper tantrum', the broker said.

Risk assets were nonetheless vulnerable to "bond shock", given how 83% of those polled expected the Bank of Japan and European Central Bank would maintain negative rates over the next 12 months, strategists Michael Hartnett, Brian Leung and Jared Woodard said in research report sent to clients.

A net 54% of those who participated believed the combined valuation of stocks and bonds was at its greatest since May 2000.

The results of the September survey also threw up the first meaningful reduction in bond proxy exposure, such as staples, utlities and telecommunications.

REITS and technology were stubbornly holding-out as 'longs', while the 'underweight' position on Japan was the biggest since December 2012.

On the flip-side, managers' 'overweight' on emerging markets was at its highest in three-and-a-half years.

"Autumn catalyst for rotation from negative-interest-rate-policy winners to losers remains exclusively a "good" rise in rates driven by macro or fiscal policy."