Cash has been the hot asset among investors as investors now hold the most cash since November 2001, according to Bank of America Merrill Lynch. The firm released the results from its latest Fund Manager Survey on Tuesday, reporting that cash is now at 5.6% and that this is an “unambiguous ‘buy’ signal.”

Investors are long on cash

BAML Chief Investment Strategist Michael Hartnett and his team cited their general “FMS Cash Rule” as the reason such high cash levels are a buy signal. They describe their rule as:

“When average cash balance rises above 4.5% a contrarian buy signal is generated for equities. When the cash balance falls below 3.5% a contrarian sell signal is generated.”

The BAML said their recent survey also indicated that investors are seeking capital preservation. This month has brought a rotation to cash, as well as utilities, bonds and telcos.

Meanwhile investors are moving out of banks and stocks, they said. Despite the rotation out of stocks, however, they are still long as the positioning plunged from net 21% to 5%.

Growth expectations turn negative

The investment strategy team added that expectations for global growth and profits have turned negative for the first time since July 21. Specifically on China, they said growth expectations are at the weakest level since December 2008 with 71% of investors expecting the nation’s economy to weaken over the next year.

Interestingly, some investors still don’t expect the U.S. Federal Reserve to hike interest rates even though regulators have set forth a plan to do so. BAML’s latest fund manager survey found that 23% of are not expecting any rate hike this year, while 33% expect one hike and 34% expect two hikes. This is quickly becoming a pain point because, as economist David Rosenberg warned recently, it’s important that investors get their expectations regarding rate hikes in line with the plans of policymakers (who have indicated four potential rate hikes this year) or trouble could erupt.

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