Cash on the sidelines — there’s plenty of it.
That’s one takeaway from the July edition of BofA’s closely-watched Global Fund Manager Survey.
“Cash levels rose to 4.9% from 4.7% [as] Wall Street’s $24 trillion rally is yet to elicit ‘greed'”, the bank’s Michael Hartnett said Tuesday. Granted, cash levels are “well down” from recent panic levels, but Hartnett characterizes dry powder as “still on the high side”. The average over the past decade is 4.7%.
Investors are “still cautious on the virus, macro, and the election”, he writes. Cash levels at retail funds are at 4.8%, a stash that’s ostensibly “ready to deploy”.
This is generally consistent with the narrative heard across desks, and it’s reflected in near-record high money market fund balances.
The idea is that with yields on risk-free assets near zero (or below) and with the rally in credit having taken yields on US investment grade corporate debt to levels consistent with dividend yields in equities, investors will surely deploy some of their dry powder in stocks.
Cash holdings both for US and EU-domiciled mutual funds were elevated at the end of May (the latest data we have), and the same is true for global non-bank investors more generally, whose cash levels jumped in March and are still loitering above levels seen prior to the pandemic, JPMorgan said late last week.
Again, this comes despite the massive surge in equities, and perhaps reflects a shell-shocked market — investors suffering from PTSD after March’s cross-asset bloodbath and attendant insanity (more in “The Big Whipsaw Of 2020“).
“Given how low bond yields are at the moment, we believe that most of this liquidity will eventually be deployed into equities as the need for precautionary savings subsides over time”, JPMorgan remarked Friday.
And yet, respondents to BofA’s latest survey still see equities as overvalued (right pane below).
More than a third said they plan to take no action prior to the election. 31% said they’ll reduce their exposure to risk assets, and another 15% said they may get long vol.