LONDON May 13 Global investors cut back on overstretched bets in May, reducing U.S. equities while adding back emerging market assets and raising cash, a closely watched survey showed on Tuesday.
They also viewed peripheral euro debt as the most crowded trade.
The monthly survey by Bank of America Merrill Lynch, which polled 170 fund managers with combined assets of $455 billion, showed investors boosted cash levels to the highest since June 2012.
Asset allocation to equities fell to a net 37 percent overweight in May from a net 45 percent last month. The net reading shows the difference between overweight and underweight positions.
Investors cut U.S. stocks, spooked by weak growth data and a sharp fall in technology shares, while those who are overweight Japan - which led the early part of the global equity rally - fell to a net 7 percent, the lowest since February 2013.
European equity holdings rose to a net 36 percent overweight. At the same time however, some 35 percent of investors think long euro zone peripheral debt is the most crowded trade, up from 19 percent in April.
"Investors are all aboard the periphery train. But we think growth in Europe is going to slow down. Leading indicators have been slowing down and we saw that today as well," said Obe Ejikeme, European equity and quant strategist at BofA.
"If you are in the riskiest part of the euro zone it's going to be a problem."
Yield-hungry investors have been pouring cash into Europe's peripheral debt, sending yields of Italy, Spain and Ireland - countries prominent in the euro zone debt crisis - to record lows.
But growth momentum is fading. A ZEW monthly survey of German economic sentiment showed on Tuesday that analyst and investor sentiment in Europe's biggest economy declined for a fifth consecutive month in May to its lowest level in nearly 1-1/2 years.
Overall bond allocation held steady at a net 55 percent underweight, but cash levels jumped to 5 percent from 4.6 percent in a sign of broader de-risking.
Investors reduced their underweight positions in global emerging markets to a net 11 percent from 13 percent.
"Emerging markets may be finding a floor just as momentum in developed markets is slowing," Ejikeme said.
Recent tensions between Russia and the West over Ukraine have made geopolitical crisis the biggest tail risk for investors, followed by possible debt defaults in China, according to the survey. (Editing by Susan Fenton)