Fund managers have cut their allocation to shares to an 18-month low but the majority believe the stock market peak is yet to come, according to the latest Bank of America Merrill Lynch fund manager survey.
The survey, which questioned nearly 200 fund managers at the beginning of April, continue to be cautious about the direction of the stock market as volatility makes a return.
Managers have cut their allocation to shares to net 29% overweight from a net 41% in March, pushing it back to its long-term average.
Average cash balances jumped from 4.6% last month to 5% in April.
But managers do not believe we are in the midst of a market downturn, with just 18% of investors surveyed thinking equities have already peaked. Four in 10 expect it to peak in the second half of the year, and another 39% think it will not hit the top until 2019 or later.
Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, said: ‘The bulls have been silenced but not defeated, evidenced by increased cash allocations and low expectations of global growth and profits.
‘But true bull capitulation is absent, with most investors saying the peak in the stock market is still to come.’
Optimism about global growth is on the wane, with just a net 5% expecting the global economy to be stronger in the next year – the lowest level seen since the UK voted for Brexit in June 2016.
Managers expect this to filter through into companies and the percentage of investors expecting earnings per share to rise over the next 12 months has fallen to a net 8%, down from a net 35% in February.
The number of fund managers wanting to see an improvement in balance sheets remains at eight-year highs, with a record net 33% believing companies are overleveraged.
There is plenty for investors to worry about and while hawkish policy mistakes by the US Federal Reserve and European Central Bank remain high on the list of worries (22% of investors), the biggest worry is the threat of a trade war, cited by 38% of investors.