But sentiment towards equities is starting to "melt-up", said BAML, with equities now the most expensive they have been since May 2000.
"Investor sentiment is beginning to 'melt-up'", said chief investment strategist Michael Hartnett in the report. "The summer 'melt-up' is likely to be followed by an autumn correction."
Read MoreGoldman Sachs: Get ready for only modest returns
Last week, billionaire activist investor Carl Icahn said investors should tread carefully after the run-up in U.S. stocks.
"In my mind, it is time to be cautious about the U.S. stock markets," Icahn told Reuters. "While we are having a great year, I am being very selective about the companies I purchase."
The 228 fund managers polled by BAML also saw valuation extremes in the currency markets. The U.S. dollar is at its cheapest in 10 years, while the British pound is at its most expensive since the collapse of Lehman Brothers.
Read MoreFund managers set their sights on unloved Japan
"This aggressive positioning for recovery in the second half reflects a significant increase in investors' inflation expectations. A net 71 percent expect global core CPI (the consumer price index tracking inflation) to be higher in 12 months, up 13 percentage points since last month," Hartnett said.
He added that exposure to commodities--an asset class especially sensitive to inflation--has risen to its strongest in more than a year as a result.
—By CNBC's Jenny Cosgrave: Follow her on Twitter