The turmoil in Europe has scared fund managers into keeping a large amount of cash balances, according to the Bank of America-Merrill Lynch (BofA-ML) surveys of fund managers. The surveys since August show that fund managers have been keeping more than 4.5% of their portfolios in cash, which is a contrarian buy signal for equities, according to BofA-ML. The November survey shows cash balances are 5%—they had jumped as high as 5.8% in December 2008, after the Lehman collapse.
Also See | Global fund managers continue to keep sizable cash balances (PDF)
The situation was very different earlier this year, with cash balances falling to 3.5% in February, as fund managers put cash to use, encouraged by what they thought would be a strong global recovery. Incidentally, 3.5% cash balance is also BofA-ML’s contrarian sell signal for equities. The only positive feature of the currently high cash levels is that, if there are signs of a resolution in Europe, the money could be put to use, boosting markets.
Graphic by Sandeep Bhatnagar/Mint
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