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Sick of next-to-nothing bond yields and wary of stocks, some advisers and money managers are hiding out in cash -- a strategy they say cuts losses and builds up investing ammo for later when better opportunities arise. But will the defensive move backfire?

Cash is in vogue once again with investing pros. Nearly 20% of mutual fund managers are now holding more cash -- including money-market funds and other cash instruments -- than they usually do, according to a report this month by Bank of America Merrill Lynch Global Research. That's three times the percentage of managers who said they were overweight cash in May, and the highest level since June 2010, when investors were worried about the BP oil spill in the Gulf of Mexico. Cash currently accounts for 4.2% of assets of the average portfolio, up from 3.9% in May.

The shift to cash is not just limited to money managers: Many advisers are also seeking shelter in greenbacks. "Right now we're on defense," says John Canally, economic strategist for independent brokerage LPL Financial. That firm's advisers have been about 7% overweight in cash for the last five weeks. James Holtzman, an adviser and shareholder with Legend Financial Advisers in Pittsburgh, Penn., says that since March the firm has doubled the cash exposure in its clients' stock portfolios to 20%. And at the more extreme end, Frank Martin, a financial adviser in Elkhart, Ind., has his clients' portfolio holding about 70% in cash, up from 50% in June 2006.

It's easy to see why many professional investors are seeking cover from stocks. The past few weeks have brought plenty of gloomy economic news -- from lower GDP growth forecasts to higher unemployment numbers and volatile stock market swings. Some market bears are calling for a correction, or worse, a double dip recession, says Canally. And it's not just stocks. Many pros are wary of the bond market, fearing that impending higher yields could lead to major losses, says Martin. Throw in the European debt crisis and Japan's nuclear disaster and "from an economic standpoint, there's just a lot of uncertainty," says Holtzman.

But critics say the move to cash may be misguided. Since most investors can't accurately time the market, they say, the new cash hoarders could miss out on gains when the market recovers. Consider: Investors who stayed invested in the S&P 500 index over the past 20 years had a gain of 9.1% a year, roughly 5 percentage points higher than the average investor who moved in and out of funds, according to a study from Dalbar, a Boston-based financial research firm.

As a result, not all investing pros are bailing out of stocks. Richard Slinn, investment specialist for J.P. Morgan Private Wealth Management, says the stock market's weakness right now is a great opportunity to use any excess cash to scoop up beat-down equities. Scott Tiras, senior financial adviser with Ameriprise Financial, says the firm is boosting equity exposure for some clients that have been on the sidelines too long, while keeping them invested in shorter-term high quality bonds to minimize losses if interest rates rise. Advisers at Edward Jones have kept their recommended cash holdings between zero and 10%, says Scott Thoma, a member of the investment policy committee ("a couple-month period of volatility is not reason to change that strategy," he says); Raymond James' cash levels have held steady at 20%, says Colleen Shon, a financial adviser for the company in Auburn Hills, Mich."

Cash hoarders counter that their move to greenbacks is only temporary. Many are waiting for clear signs the U.S. is emerging from its economic malaise. Holtzman of Legend says he would rather wait to see if the Federal Reserve's Treasury buying program leads to higher interest rates, a change that could make newer, higher-paying bonds more attractive than stocks. For his part, Canally says he might put more cash to work if initial jobless claims fall below 400,000 for a few weeks straight or if the U.S. economy adds about 150,000 jobs or more in June. "Once we see the signal we'll shift to putting the cash to work," he says. "Even if you miss the first 5% or 10% rise in stocks, there's still time to jump in there."