Earlier this year, professional investors reduced their cash holdings to the lowest level in more than a decade, Reuters reported, citing Bank of America’s Global Research. Cash allocations fell to 3.5% in February 2025, the lowest level since 2010.
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That kind of drop often signals growing confidence in the market, but things have changed since then. So what does all of this actually mean for everyday investors?
What Drove the Drop in Institutional Cash?
When institutional investors pulled their average cash allocations down to 3.5% in February, it signaled a shift in how fund managers were viewing the market. Bank of America noted that this shift reflected investors being bullish and long on stocks while short on everything else, Investing.com reported.
“Equities started looking attractive again, while holding cash in hand seemed inefficient,” said Eugenia Mykuliak, founder of B2Prime Group.
In short, fund managers reduced their cash positions as confidence in the economy improved and other investments started to look more worthwhile by comparison.
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A Short-Lived Shift
That optimism may have been premature. While February’s numbers showed strong risk appetite, sentiment cooled quickly in the weeks that followed. By April, average cash allocations had already climbed back up to 4.8%. That was the largest two-month increase since April 2020, Trustnet reported.
As Bloomberg reported, April’s survey showed that investors were uncertain about trade policy and unsettled by stock market volatility. Because of this, survey respondents were 36% underweight in stocks in April compared with 17% overweight in February.
“The February optimism may have reflected a best-case scenario,” Mykuliak said. “But markets rarely move in straight lines.”
What Retail Investors Should Take From This
For everyday investors, institutional behavior can offer insight into market sentiment, but it shouldn’t drive investment decisions.
“Retail investors should never replicate institutional behavior directly,” Mykuliak explained. Fund managers have access to advanced risk tools, alternative asset classes and short-term strategies that aren’t available to most individuals.
Bridger Pennington, a private fund manager and founder of Investment Fund Secrets, emphasized the importance of staying grounded and advocated being an investor rather than a trader. He also noted that while many professionals are cautious in the short term, the long-term view remains optimistic. “The medium to long term is a very bullish outlook for North America and the United States if these tariff negotiations go well,” he said.