Investors are hoarding their biggest piles of cash since the financial crisis — and Bank of America has a surprising take on what that means for the market’s future
Investors with $515 billion in assets under management are hoarding the most cash since the Great Recession 10 years ago, according to Bank of America Merrill Lynch.
This rotation, combined with their withdrawal from the stock market, might suggest to some that sentiment is bearish.
However, Bank of America’s investment strategists see the data differently. They explained why these developments are actually bullish for the stock market.
An asset class that had been unloved suddenly became all the rage towards the end of last year.
Almost in unison, strategists urged investors to beef up their holdings of cash and its equivalents like Treasury bills.
There were two main reasons. First, the stock market’s volatility and the outlook for even more gyrations this year raised the importance of having a safety hedge. Second, short-term interest rates had risen high enough to be an attractive alternative to riskier assets — so much so that cash was the best-performing asset class of 2018.
It turns out investors heeded the advice, which had poured in from all corners of the sell side. According to Bank of America Merrill Lynch’s fund manager survey for February, the rotation into cash lifted traders’ overweight position to its highest level since the Great Recession in January 2009. Their net cash allocation specifically jumped six percentage points to 44%.
The BAML survey included fund managers who oversee a combined $515 billion in assets.
This rotation to cash happened at the expense of stocks. In February, fund managers reported the smallest overweight in equities since September 2016.
What makes this rotation more striking, besides the post-crisis milestone, is that investors beefed up on cash even as stocks surged in January.
At first blush, it’s a sign that investors are becoming more averse to taking risk in the stock market and would rather …read more
Source:: Business Insider