The number of investors adding protection against an equity market correction has seen its largest monthly increase in 14 months, according to the latest Bank of America Merrill Lynch (BofAML)survey.
The September Global Fund Manager survey of 214 panellists with $629bn in AUM found participants were becoming more defensively-positioned in preparation for a possible market pullback.
As well as increased numbers buying protection, the average cash balance was 4.8%, above the 4.5% ten-year average.
Some 30% said they would find an equity bubble the 'least surprising event' over the next 12 months.
There were similar fears about the fixed income market, with 81% of investors describing bonds as 'overvalued'; the highest level for nearly a year.
Michael Hartnett, chief investment strategist at BofAML, said: "Cash levels remain elevated, suggesting markets can remain in an Icarus upside mode for risk assets.
"Investors have shunned mean reversion and cut their expectations for much higher bond yields."
Optimism over global growth has fallen in recent months, with just 25% of managers expecting a stronger economy in the next 12 months compared to 62% at the start of the year.
Their concerns were exacerbated by fears over North Korea, as 34% indicated the potential for conflict was the biggest tail risk to markets. Allocations to Japan were cut back to 12% overweight in September, down from 20% overweight in August, with North Korea seen as a key risk factor.
A policy mistake by the Fed/ECB was cited by 21% of respondents, while Chinese credit tightening was a concern for 15%.
Elsewhere in the survey, allocations to US stocks fell to net 28% underweight; the largest underweight position since November 2007.
Meanwhile, managers' exposure to emerging market equities rose to net 47% overweight and the survey noted investors have not been this underweight the US relative to EMs since December 2007.
The survey also noted investor bullishness toward the eurozone was now dissipating.
Ronan Carr, European equity strategist, added: "Overall sentiment on the eurozone is becoming less euphoric, with headwinds from a strong euro and investors' EPS expectations showing less momentum."
Over half of investors surveyed (54%) cited volatility as the most undervalued asset, followed by sterling (15%) and oil (10%).
Long Bitcoin was considered the most crowded trade at 26%, while long Nasdaq fell to the second spot (22%), followed by short USD (21%).
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