International investors’ allocation to US stocks is at 19% underweight for May, from 12% underweight the month previous, according to a recent survey. And positions were notably overweight in just the first quarter of the year.
Meanwhile, the S&P 500 has hit record highs. And equities have also been climbing: the Dow Jones industrial average and the S&P closed on Monday at record levels.
"Relative positioning of the US vs the rest of the world is now at the most extreme since November 2007," reported the Bank of America Merrill Lynch survey. "Contrarians would go long US equities relative to the broader market."
From May 8 to 15, BAML surveyed 208 fund managers who control $607 billion in funds. Seventy percent of the managers surveyed expected strong global growth.
The hopes for the first US interest rate increase since June 2006 have been delayed with most of those surveyed believing any rate increase will come in that last quarter of this year or later.
While 49% of managers surveyed were overweight on eurozone stocks in May, there was also an increase in overweight cash positions to a 10-month-high, a sign of caution from funds that invest in US and global markets.
"There is no loss of faith in economic recovery, and positioning still assumes that the US dollar goes up, but doubts are creeping in – hence this jump in allocation to cash," Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, told CNBC.
Respondents identified bonds as the most vulnerable this year; over half of the managers surveyed said they expected fixed income assets as the class most likely to be volatile this year.
There was also a drop in reported corporate confidence, with only 7% of respondents asserting that they saw the US as the region with the strongest earnings outlook.
