Bearish fund managers are piling into cash and bonds and building defensive positions at an accelerating pace.

This shift has been prevalent for some months but has become more widespread among global money managers as markets have declined.

According of Bank of America Merrill Lynch's December investor survey, fund managers are the most bearish they've been on the global economy since the financial crisis with a net 53 per cent expecting a slowdown in 2019.


The survey showed fund allocation to bonds surged 23 percentage points while equity allocation fell 15 percentage points to a two-year low.

Average cash balances moved up 4.8 per cent.

The move from equities to fixed income and cash reflected concern over corporate balance sheets, the survey noted, but fund managers were also anxious about this week's Federal Reserve's monetary policy path.

There's also doom and gloom about US-China trade tensions, the risk to the EU of a hard Brexit and a deteriorating global economy.

"Investors are close to extreme bearishness," Michael Hartnett, Bank of America Merill Lynch's chief investment strategist, said.

Shares in technology giants have fallen the most out of favour, although the so-called FAANG + BAT stocks (Facebook, Amazon et al) were still the most traded class in December, followed by bets against emerging markets, the survey showed.

The tech heavy Nasdaq is on track for its worst quarter for a decade and is down about 15 per cent this year.

In this part of the world, some New Zealand fund managers have been reducing holdings of shares and corporate bonds in favour of cash for some time.


"In line with our more cautious outlook we have been holding more defensive securities...with more reliable earnings, healthy balance sheets and stable cash flows," Milford Asset Management chief executive Troy Swann said in a note to clients this week.

Pie Funds is another manager carrying high levels of cash in what CEO Mike Taylor says were tactical moves made over the past few months.

Interestingly, global fund Vanguard Group has been actively buying blue chip New Zealand shares that are either strong defensive companies or high dividend paying.

On December 12 Vanguard bought 34.7 million Spark shares, 27.1 million Kiwi Property Group shares, 16.1 million Fletcher shares, 13.9 million a2 Milk shares, 16.1 million Fletcher Building shares and 8.15 million Chorus shares.

Vanguard, one of the world's largest providers of passive investment funds, was recently appointed by ASB to run some of their funds including the bank's KiwiSaver scheme.

The outlook for New Zealand appears better than overseas markets with recent surveys showing a more positive tone than previously due to the change of Government.


The BNZ Business Banker Survey for example found that business confidence overall was positive in the fourth quarter and the ANZ business outlook survey also reported a lift in December.

Meanwhile, Treasury is still forecasting average annual real GDP growth of 3 per cent in 2019/20, with continued solid global demand for agriculture and tourism and robust investment in housing.

However, the local sharemarket is largely driven by offshore events at the moment which is why professional investors are exercising caution.