Bonds Gain Fund Managers' Favor

Safety Belts Remain Fastened

Investors also continue to exhibit a high level of risk aversion, the survey says, with 33% of asset allocators overweight cash. Merrill says this level is an all-time high.

Lipper analyst Jeff Tjornehoj warns that playing it overly safe may not be the best strategy, even though equity markets are volatile.

He notes that people tend to hold more cash when rates hit or surpass 5%, but that cash is not the only place to get a similar return. Tjornehoj found that over the past seven years, funds that invested overseas tended to meet the 5% return mark over any 12-month period, and that international small- and mid-cap funds had the best chance.

More interestingly, he found that the funds that posted a 10% return or greater over the time frame were nearly all equity funds, "and the worst categories for making that return were the 'safe' ones, such as large-cap core or balanced funds or even utilities."

"The chance of getting a 10% earner in those types was only one in four or worse. Only one in 14 large-cap core funds made it," Tjornehoj says. "If the past seven years have left us with anything worth remembering, it's that playing it safe keeps us on the sidelines when the big plays eventually turn up."