Bank of America's August survey of fund managers reveals a substantial shift away from cash, with allocations dropping to 3.5%. This level is one of the lowest since 1998 and activates BofA's contrarian Cash Rule "sell" signal, which triggers when cash holdings are at or below 4%. This indicates a pronounced fear of missing out among managers, who are actively reducing cash buffers and redeploying into yield-bearing equities and real assets.
Institutional investors have moved out of money market funds and into risk assets, pushing global equity allocation to a net 56% overweight, the most bullish stance since November 2021. U.S. equity allocation stands at a net 27% overweight, the highest level since December 2024, and managers have been overweight equities for 14 consecutive months. The shift suggests conviction rather than merely tactical redeployment, despite money market yields previously being above 5% and public markets exhibiting high volatility.
While conventional wisdom suggests buying long-duration bonds when rate-cut odds rise, the current trend shows money moving into high-dividend equities, REITs, and low-volatility strategies. Top-performing ETFs reflecting this trend include iShares Core High Dividend (HDV) with a 21.76% YTD return and 3.00% dividend yield, SPDR S&P Dividend (SDY) with 13.32% YTD return, Vanguard Real Estate (VNQ) with 11.60% YTD return, and Invesco S&P 500 Low Volatility (SPLV) with 7.27% YTD return. This reallocation occurs as 56% of fund managers anticipate a "no landing" economic outcome and 43% expect a "boom" outcome, both being the highest readings since February 2022. The record $7.75 trillion in money market funds has barely budged, but that doesn't mean it's "dry powder" for stocks; rather, it reflects outdated decisions and inertia for many investors, particularly as the era of high "free" cash yields ends with falling rates.
Bank of America's broader investment stance remains "long stocks, short bonds," supporting the economy's reliance on wealth effect spending from rising equity holdings and the AI data-center capital expenditure boom. However, the bank cautions that investor bullishness, now at its highest since 2021 with its "Bull & Bear Indicator" at 9.7 (a sell signal for any reading above 8), warrants retreating from risk assets and rotating into defensives. Recommended defensive plays include consumer staples, real estate investment trusts, small-cap and biotech stocks, and the U.S. dollar, which are seen as less vulnerable than sectors like banks, industrials, and semiconductors. These warnings come amidst a surge of cash into markets, with $32.9 billion flowing into stocks, including $9.6 billion into U.S. equities, putting inflows at an annualized record pace of $652 billion so far in 2026. Investment-grade bonds also attracted an annualized record inflow of $527 billion this year, and high-yield bonds saw their biggest weekly inflow since July 2024 at $4.1 billion. Nevertheless, there were signs of cooling in crowded trades, with tech funds experiencing their first outflow in six weeks at $0.7 billion and semiconductor ETFs seeing $2.4 billion in outflows, though tech inflows are still running at an annualized record pace of $217 billion.
