Institutional investors without cash, what does this mean for the market?

Institutional investors without cash, what does this mean for the market?

Institutional investors at peak optimism: cash is gone and hedges have disappeared.

The world's largest institutional investors are currently in a state of 'peak optimism,' and the numbers coming from the field tell a fascinating story about how big money is currently behaving.

Cash levels at a historic low: fund managers currently hold only 3.2% of their assets in cash.

To understand the significance, this is the lowest level recorded since these data began to be collected back in the 1990s. When cash is so low, it means investors are 'invested up to their necks' in other assets.

This is a sharp drop of 1.6 percentage points since last April, one of the fastest paces ever seen in investor surveys.

This is in fact a record-breaking streak; this is the seventh consecutive month that cash levels are below the 4% threshold of total assets under management (AUM). This is the longest streak of such low cash levels ever recorded.

Yes, you heard right, this is the longest streak in recorded history of such low cash levels...

According to Bank of America data, investment managers have not been this optimistic about the markets since July 2021.

This optimism is translated from talk to action, as almost every available dollar enters the market instead of remaining in the bank as a reserve.

However, alongside this great confidence, there is a statistic that is important to note:

Most global investors currently have no 'insurance' or protection against a sharp decline in the stock market. In fact, the percentage of investors who are completely exposed without hedges is the highest measured since early 2018.

When cash in the coffers is scarce and there are no hedges in place, the market becomes very sensitive to any surprise.