It seems to me like the few stock market bears that were left have been capitulating lately. Every week we’re hearing of another short fund closing their doors, or another market bear saying now it’s okay to be in stocks. This is just anecdotal of course, nothing quantitative or anything. But I’m sure we can all agree that we’re seeing this all around us.
Something that stands out to me is the latest survey from Active Investment Managers. This is one of those, “what are they doing?“, and not, “what are they saying?“, type of polls. A lot of my smart friends find these more valuable. I personally try to look at them all, and then take them in aggregate.
The National Association of Active Investment Managers (NAAIM) consists of active money managers that are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week. The range of responses can vary from up to 200% leveraged short, to zero (if all in cash or hedged market neutral), to 200% leveraged long, and everything in between.
One of the reasons that I like this particular poll is because of the wide range of investment styles among the managers participating in the survey. These include managers that trade frequently and can switch long and short positions daily. Other managers trade less and for the most part just keep their core positions. But it’s a better representation of the real world, and not just the long only, “hope for the best”, type of passive managers.
Here is the latest chart showing that investment managers haven’t been this exposed to the US Stock Market, this aggressively, since at least 2006 (when the poll first began):
For only the second time in the history of this poll, the average manager is leveraged to the long side. In other words, if you randomly pick out an investment manager from this group, they have actually borrowed money to bet on rising prices to continue. The confidence among these managers is currently the highest ever.
According to Sentiment Trader, Intensity is also extremely high. This is the deviation in exposure between the most bullish and most bearish manager. Since the most bearish manager is actually net long the stock market (something that happens less than 4% of the time), managers’ intensity is also among the highest levels ever seen. So although we’ve seen the NAAIM number slightly higher in the past, it’s the combination of this poll number with the intensity that currently makes managers the most bullish ever.
While many of the individual managers are talented and increase or decrease their market exposure at fortuitous times, Sentiment Trader notes that as a group they tend to be more of a contrary indicator when too many of them skew to one side or the other.
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