Fund Managers Boost Cash Holdings as Economic Worries Mount, BofA Survey Finds

Global fund managers increased their cash allocations in September, signaling a more defensive posture amid shifting economic expectations and concerns over bond market stability, according to the latest Bank of America survey.

Average cash levels in portfolios rose to 3.9%, up from 3.5% in August, as investor sentiment shows signs of caution despite some underlying optimism on corporate performance.

Economic Outlook Remains Mixed

The survey revealed a complex view of the global economy. A majority of respondents, 55%, now anticipate a "no landing" scenario, where growth continues without a significant downturn. This contrasts with 38% who expect a soft landing and just 2% who foresee a hard landing.

Despite the prevailing "no landing" view, only 8% of investors expect global growth to accelerate. However, sentiment on corporate profits has improved, with a majority predicting double-digit earnings per share (EPS) growth over the next year—the highest level of optimism since August 2021. In a sign of potential concern, a record 33% of participants believe companies are over-investing.

Bond Yields and Crowded Trades Emerge as Key Risks

Investors identified a disorderly rise in bond yields as the biggest tail risk to markets, cited by 33% of managers, an increase from 27% in August. For the first time since September 2022, investors also expect a flatter yield curve, indicating a view that the Federal Reserve is "behind the curve" on monetary policy.

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Other key risks and market concentrations highlighted in the survey include:

• Most Crowded Trade: Global semiconductors were named the most crowded trade by 53% of respondents.
• Potential Credit Event: Capital expenditure from AI hyperscalers was seen as the most likely source of a credit event by 42% of those surveyed.
• Political Uncertainty: Regarding the U.S. midterm elections, 45% of investors said a Democratic sweep would likely lead to higher bond yields and lower stock prices.

Sector Rotation Signals Defensive Shift

In line with the increase in cash, fund managers adjusted their sector allocations, reducing overweight positions in stocks and commodities while remaining underweight in bonds.

September saw a clear rotation into more defensive and cyclical areas. Managers moved into healthcare, industrials, and banks, with banks reaching their most overweight position since November 2025. Conversely, investors sold positions in real estate investment trusts (REITs) and consumer staples, with staples falling to their most underweight level since January 2004.