BofA Clients Keep Tight Grip on Cash Amid Ebullient Stock Rally

(Bloomberg) -- After slashing cash piles by the most in a decade last month, fund managers with $570 billion are largely hanging on to their dry powder amid one of the most epic stock rallies in history.

Investors surveyed by Bank of America Corp. boosted average cash holdings to 4.9% this month from 4.7% in June, according to a week-long poll ended July 9. With global equity benchmarks up about 40% from this year’s lows, most managers see stocks as overvalued and prefer navigating the volatility with bonds and commodities, according to BofA.

It’s an about-face from June, when fund managers cut cash by the most since August 2009. This time around, just 14% of those surveyed expect a quick, or V-shaped economic recovery, compared with 44% who forecast a more gradual, U-shaped rebound.

“Investor sentiment remains cautious; consensus positioned for bad news on virus, macro, election,” strategists led by Michael Hartnett wrote in a note published on Tuesday. “Wall Street’s $24 trillion rally yet to elicit ‘greed.’”

The BofA poll comes at an inflection point for markets as virus cases jump in some U.S. states and geopolitical tensions come back into focus. Many traders are torn between taking profits from a rally that’s frayed plenty of nerves or hanging on for even more outsized gains.

Institutional investors such as pension funds boosted their cash levels to 4% in July, whereas retail investors such as mutual funds decreased their holdings to 4.8%. The allocation to commodities is now the highest since July 2011, according to the poll, while bond exposure is elevated relative to the past decade.

Among various asset classes, euro-area equities were most popular in July among polled fund managers, who also bought materials, tech, health care and commodities. Investors reduced their allocation to value stocks, banks and bonds, according to BofA.

With the U.S. presidential election on the horizon, 34% of fund managers surveyed say they won’t take any action, compared with 31% who say they’ll cut risk and 15% who plan to buy volatility.

BofA surveyed 188 fund managers as part of the global poll.

Other survey highlights include:

• Allocation to euro-zone stocks increased 9 percentage points to net 16% overweight, the largest increase in weighting of any region this month
• Allocation to U.S. equities declined 1 percentage point to net 21% overweight; the U.S. remains the survey’s most popular region
• Exposure to U.K. stocks declined 1 percentage point to net 30% underweight; the U.K. is the poll’s least popular region
• Most crowded trade is in U.S. tech and growth stocks, followed by a long in gold and a long in cash
• Among polled investors, 54% say the Federal Reserve won’t introduce yield curve control in September
• Top tail risk is second wave of Covid-19, followed by the U.S. election
• Global corporate earnings bets climbed to net 36% of investors expecting profits to improve in next 12 months

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