Recent market volatility has institutional investors adding to their cash positions, and fleeing from commodities, according to the latest BofA Merrill Lynch Fund Manager Survey.

The survey found that asset allocators have hiked their cash holdings to an average 5%, and that a net 28% are now overweight cash relative to their benchmarks.

Yet, despite this defensive move, fund managers are also expressing renewed confidence in the global economy, the firm says. It notes that a net 60% now expect the economy to strengthen over the next year, which is up almost 30 percentage points in two months. And, against this constructive background, investors are also more confident that corporate earnings will rise, it says.

At the same time, with the recent weakness in oil prices, inflation expectations have fallen to their lowest level since August 2012, Merrill reports. It also says that commodities have fallen sharply out of favour with fund managers, as a net 26% now underweight the asset class.

This, in turn, has intensified bullishness on the U.S. dollar, Merrill adds. “While funds continue to view long exposure to the U.S. currency as the most crowded trade in financial markets currently, they still regard the dollar as significantly undervalued,” it says.

Among equities, Merrill reports that investors’ appetite for eurozone equities has risen to a net 26% overweight, up from 8% last month, with a net 19% saying eurozone equities are undervalued. Conversely, U.S. and Japanese stocks are falling out of favour, “With the U.S. market appearing overvalued to a strong majority of the panel, a net 10% now intend to underweight it in the coming 12 months,” it says.

A total of 214 panelists with US$604 billion of assets under management participated in the survey from Dec. 5 to 11.