On the eve of a new year, how are global investors positioned? What is their view of the market outlook? These are some questions the Bank of America-Merrill Lynch (BofA-ML) December survey of global fund managers tries to answer.

The key finding is that 54% of fund managers believe that the global best-of-all-worlds scenario of above-trend growth and below-trend inflation will continue. This “just right" mix has been dubbed the Goldilocks scenario.

It’s no wonder then that the percentage of investors taking higher than normal risks, although it fell in December, was at a record high last month.

At the same time, fund managers are worried about valuations. A net 45% of them say that equities are overvalued. This has led to an increase in their level of cash holdings, from 4.4% in November to 4.7% in December.

Given that, as the BofA-ML survey says, fund managers are “smitten by Goldilocks", that cash could well be used to fuel a rally in equities in the new year. So what assets do investors like and what are they avoiding? The survey says the pro-cyclical consensus trade is: ‘Investors are long macro “boom", short “bust"; long stocks, EU/Japan/EM stocks, financials (2nd largest ever), materials (highest since 2/2012) vs short government bonds, US stocks, healthcare & utilities.’

In view of the optimism, it isn’t a surprise that the most crowded trades are : 1) long Bitcoin (32%), 2) long FAANG (Facebook, Apple, Amazon, Netflix and Google) +BAT (Baidu, Alibaba, Tencent): 29%, 3) short volatility (14%).

A net 43% of fund managers are overweight emerging markets. The balance of fund managers overweight equities is not yet at a historical extreme, which is why the rally still has legs.

What could go wrong? The survey states: “all trades vulnerable to higher inflation & aggressive ECB/BoJ Quantitative Tightening in 2018." That could scare Goldilocks.

It’s the reason why, in spite of being upbeat, a quarter of investors surveyed felt the market will peak in the first quarter of 2018; 30% said it will do so in the second quarter while 28% said it will happen in the second half.