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BofA Survey: Fund Managers Lift Cash Holdings to Highest Level in 2 Years

By Dan Weil   |   Tuesday, 12 Aug 2014 02:39 PM

In a sign that increased volatility in financial markets is scaring fund managers, their cash holdings have soared to the highest level since June 2012, according to the Bank of America/Merrill Lynch Fund Manager Survey for August.

The poll of 224 fund managers shows that a net 27 percent of respondents to the global survey are overweight cash in August, up from a net 12 percent in July.

Meanwhile, the portion of fund managers who are overweight equities dropped 17 percentage points from July to a net 44 percent in August. The percentage of investors hedging against a big tumble in stocks during the next 12 weeks climbed to its highest point since the 2008 financial crisis.

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A net 56 percent of the global panel expects the economy to strengthen in the year ahead, a fall from a net 69 percent in the previous month. However, sentiment toward Europe has fallen significantly — the earnings outlook for the region suffered its greatest monthly fall since the survey started.

Fears of a geopolitical crisis is the biggest cause of risk-reduction – with 45 percent of respondents naming it their number one “tail risk” this month, up from 28 percent a month ago. But a new question in the survey highlights how a rate hike is also playing on investors’ minds – 65 percent of the panel expects a U.S. rate rise before the end of the first half of 2015.

The S&P 500 dropped 4.3 percent from its record high July 24 to its low last Thursday, amid the military conflicts in the Mideast and Ukraine. The index has rebounded 1.8 percent since then.

"The market 'melt-up' is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher [interest] rates," said Michael Hartnett, BofA's chief investment strategist.

Many economists predict the Federal Reserve will start raising rates in next year's second or third quarter.

Uncertainty appears dominant in the stock market now. "We're in a zone of ambivalence with investors maintaining a cautious bias," Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, told Bloomberg.

"Equities appear to be navigating the dog days of summer with markets being driven more by geopolitical events then economic and company fundamentals."

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