Investors Boost Stock Hedges at Fastest Pace in More Than a Year

(Bloomberg) -- The number of investors seeking protection from a stock market plunge rose by the most in 14 months in September, according to the latest survey of fund managers by Bank of America Merrill Lynch.

There was a 9 percentage point jump in the share of investors buying equity hedges, according to the Sept. 1 to 7 poll of money managers overseeing $629 billion. That leaves only a net 27 percent who have not bought protection, the bank’s strategists said. The level of underweight positions in U.S. equities rose to a ten-year high.

Heightened tension over North Korea’s nuclear weapons program is one of the reasons behind the move. Fear of a conflict involving the Asian nation became the top “tail risk” in September by a wide margin, according to the report. Kim Jong-un’s regime conducted its sixth and most powerful nuclear test on September 3.

Still, investors are putting funds to work. Overweight positions in emerging-market equities rose to a seven-year high, and cash levels fell to 4.8 percent from 4.9 percent.

Those cash levels “remain elevated,” said Chief Investment Strategist Michael Hartnett. Investors have also cut their expectations for much higher bond yields, he said.

Fund managers were more optimistic on the outlook for the global economy. The percentage of investors expecting a “Goldilocks” scenario of above-trend growth and below-trend inflation rose to a record 43 percent.