Fund managers increased their cash reserves at the outset of war by the most since COVID emerged

By Jules Rimmer

Investors' cash weighting make their biggest jump since March 2020

The war in Iran has redrawn the investment map and forced a dramatic revision of prospects for the global economy, evidenced by Bank of America's fund manager survey for March.

Fund managers are becoming less enthusiastic and increased their holdings in cash by the fastest rate since the advent of the pandemic in March 2020, a new survey released Tuesday found.

The March instalment of Bank of America's global fund manager survey revealed a slump in investor sentiment to a six-month trough, though it's still well above the low from April when President Donald Trump announced sweeping tariffs. The decline in sentiment coincided with a notable jump in cash levels with respondents to the survey reporting an increase from February's 3.4% to 4.3% as of last week.

BofA Global FMS investor sentiment falls to 6-month low. This is a proprietary index predicated on cash levels, equity allocation and growth expectations.

The survey was compiled by Bank of America's strategy team, headed up by chief investment strategist Michael Hartnett, and attracted responses from 181 fund managers running half a trillion dollars of assets. The bearish turn described in the note published Tuesday was captured not just by cash and the broad measure of sentiment but also by a fall in growth optimism from a net 39% to 7% and a corresponding hike in inflation expectations, with 45% now predicting higher global consumer price indices over the next year.

Inflation and interest-rate expectations jumped.

Reflecting the outbreak of war in the Middle East and its attendant oil price spike, fund managers replaced the prospect (or reality) of an AI bubble with geopolitics and inflation as the biggest tail risks.

Naturally, the uptick in inflation forecasts is having a big impact on the rate cuts that markets were anticipating until just recently. Only a net 17% of asset managers now expect lower policy rates from central banks whereas that figure was 46% when they were canvassed in February. As a consequence, the assumption that the U.S. Treasury yield curve would steepen through 2026, widely accepted by a net 80% of respondents in February, is now more doubtful with only 56% viewing that as likely now.

Encouragingly for risk assets, fund managers agree with the downward arc of the forward curve of the oil markets, as only a tenth of them can see Brent (BRN00) trading north of $90 by year-end.

There's a significant leap in the poll's expectations for the Democrats' performance in the midterm elections. Almost a third of fund managers can see a blue wave with the Democrats controlling the House and the Senate, versus just 11% in January.

-Jules Rimmer

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03-17-26 0747ET