US recession replaces China as fund managers' biggest fear

Fund managers' biggest fear is a US recession, replacing worries about the fallout from China, as managers are negative on both global growth and profits.

The latest Bank of America Merrill Lynch fund manager survey shows that the biggest tail risk facing markets is a US recession, with 27 per cent of managers selecting it. It replaces the fallout from China which was the top concern in the previous survey.

This was closely followed by emerging market or energy debt defaults, at 23 per cent.

For the first time since July 2012, fund managers' global growth and profit expectations have both turned negative.

Fund manager wariness on markets has led to the highest cash holdings since November 2001, at an average of 5.6 per cent.

Looking to the most crowded trades, fund managers are pouring into the US Dollar, shorting oil and emerging markets, and buying into tech giants Facebook, Amazon, Netflix and Google at 12 per cent.

The shifts in portfolio reflect fund managers' need for capital preservation, with moves into cash, utilities, bonds and telcomms and out of banks and equity markets.