The findings from Merrill Lynch suggest fund managers have reduced average cash holdings from 4.9% to 4.3% amid positive expectations on corporate profits.
According to 18% of fund managers this month, the outlook for global profits will improve over the next year, while in contrast 12% of fund managers were bearish about profits in April.
While many investors are still underweight in equities, cyclical stocks such as energy, materials and industrials have become more popular. They are expected to perform better during a recovery.
Investors have moved to a net underweight position in bonds for the first time since last August, believing they are overvalued.
Many are rushing to emerging markets, as investor optimism in China’s economy is higher than at any point in the past six years.
“Investors are finally opening their wallets and reducing cash balances to mid-cycle levels to buy equities, cyclical stocks and risky assets,” said Michael Hartnett, co-head of international investment strategy at Merrill Lynch.
“However, this rush to take on risk, especially in emerging markets, is reminiscent of bubble-like behaviour. A record net 40% of fund managers are looking to overweight the region in the next year.”
Current sentiment towards the global economy is in stark contrast from October last year, when 60% of investors predicted the outlook would deteriorate.
In the most recent survey, 57% said the economy would improve over the next year.
However, not all fund managers have fully embraced equities, with 6% remaining underweight in equities globally, including significant underweight positions in Japan, the eurozone and the UK.
“The recharged optimism of fund managers is not fully matched by asset allocations. One upside risk for markets is more asset allocation out of cash and bonds into equities,” said Hartnett.
A total of 220 fund managers, managing a total of $617bn (£392bn) participated in the survey this month.
