The Russian invasion of Ukraine has forced fund managers to pile into cash and adopt the most negative stance on global growth since the collapse of Lehman Brothers.

That’s according to the latest Bank of America Merrill Lynch Global Fund Manager Survey, which canvassed 341 panellists in March, who have combined assets under management of $1tn.

In the latest reading, the fund managers now have an average of 5.9% cash on hand, compared with around 5.0% over the last few months. For context, this is the highest level since April 2020 and above what was seen during the global financial crisis.

Current sentiment matches the 2007/2008 period when it comes to the global growth outlook. Month-on-month optimism over global growth plummeted, with around two-thirds of respondents now backing weaker growth over the next 12 months, compared with a neutral stance in February.

This means the global growth outlook is at its lowest level since July 2008. CPI expectations have risen, while inflation is now viewed as a permanent consideration, rather than something more temporary. This has also led 60% of respondents to say stagflation is coming.

 
BofA said the recent disconnect between global growth projections and investment calls is being realigned, as fund managers are now pulling out of equities. However, this comes with the caveat that equities remain overweighted, albeit without the free-for-all sentiment of previous reports.

Unsurprisingly, Ukraine/Russia is the most heavily cited tail risk, ahead of a global recession and inflation. Commodities allocations have risen sharply, with one-third of managers now buying in this market, which also led long commodities/oil to take the crown as the most-crowded trade.

Macro sentiment has shifted strongly, but there is still a sense that the Federal Reserve will persevere with four rate hikes over the course of 2022. Despite liquidity conditions being viewed as aligned with the challenging period of April 2020, which necessitated huge central bank intervention.