Last updated: 22:02 / Thursday, 14 April 2016
BofA Merrill Lynch Survey

Investors look into Cash as Fears of Quantitative Failure Persist

Investors look into Cash as Fears of Quantitative Failure Persist
  • Average cash balances are close to the 5.6$ record from February
  • Shorting Emerging Markets, Long US dollar, and Long Quality Stocks, the favorite trades
  • The Fed is expected to conduct two or less rate hikes in the next 12 months

According to the latest BofA Merrill Lynch Global Research report, conducted from April 1-7, 2016, average cash balances jumped up to 5.4% from 5% in March, approaching the 15 year-high of 5.6% recorded in February  While the three top most crowded trades are Shorting Emerging Markets, Long US dollar, and  Long Quality Stocks.

“With valuations for bonds and equities at their seventh highest reading in 13 years, investors may be turning to cash to protect against the downside while shunning risk assets where valuations constrain the upside. Range-based trading is likely to continue,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch.

Regarding the US Monetary Policy, the vast majority of fund managers still expect no more than two Fed hikes in the next 12 months, while “Quantitative Failure” remains one of the biggest tail risks. Meanwhile in Europe, a record percentage of fund managers see EU monetary policy as “too stimulative” while confidence in this policy as an economic growth driver drops sharply to 15% from 24% in March

The survey also noted that investors have rotated into staples and cash, from Japan, discretionary, commodities and Eurozone. Allocation to Japanese equities marked its first underweight positioning since December 2012.

According to Manish Kabra, European equity and quantitative strategist, “Global investors highlight Quantitative Failure as the biggest tail-risk, followed closely by Brexit. However, despite significant convergence in previously extreme regional preferences, Europe remains the most attractive region globally.”