Cash at 15-year lows triggers ‘sell’ signal
Investors are dialling up risk as they see a rosy economy outlook playing out this year, writes Sam Benstead.
18th February 2025 13:12
by Sam Benstead from interactive investor
Professional investors are extremely bullish on the stock market, holding just 3.5% of portfolios in cash.
This is the lowest cash balance since 2010, according to the monthly Bank of America Global Fund Manager survey.
Cash balances below 4% trigger a “sell” signal for Bank of America, while balances above 5% indicate that investors are too fearful and assets are likely cheap.
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This comes as stock markets continue to rise. The MSCI World index has risen 4.6% this month and the FTSE All-Share index is up 6.6%.
Investors are increasingly optimistic about the global economy, with recession expectations falling to a three-year low – just 16% of those surveyed said the global economy is likely to experience a recession in the next 12 months, while 82% said a global recession is unlikely.
Low cash balances mean that a greater share of portfolios is invested: the Magnificent Seven group of US tech shares remains the most overcrowded trade, but there is growing optimism for markets outside the US.
In fact, fund managers believe that the EuroStoxx index will outperform the Nasdaq this year, and Chinese equities will perform well too.
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This comes as 89% of investors view US equities as overvalued, the most since at least April 2001.
But this does not mean that professional investors expect a correction. In fact, they think US shares could be the third-best asset class this year, just behind gold and global shares.
With regards to sectors, investors are most overweight bank and healthcare and most underweight resources.
Despite the optimism, investors are worried about a trade war triggering a global recession.
Asked about asset performance in the advent of a full-blown trade war, 58% viewed gold as the best-performing asset, followed by the US dollar (15%), and the 30-year US Treasury bond (9%).
President Trump has been threatening tariffs with key trading partners, such as Canada, Mexico and China, but investors are not convinced he’ll follow through with measures that will be too damaging to the economy.
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Former manager of Ruffer Investment Company (LSE:RICA) Duncan MacInnes believes that investors are too bullish on US shares, and due to their large weighting in global indices, this could derail some portfolios.
He said: “The US stock market is definitely the epicentre of our concerns and that’s where this concentration issue becomes a problem. The rest of the world may look much more attractive on valuations, but the US is now so big, the concentration runs at several levels.
“The US is 74% of the MSCI World, and then within the US you have this huge concentration within the Magnificent Seven, which I think is now getting towards 30% of the index, and then the tech sector more broadly, something like 40% of the index. So, the concentration is a problem.”
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