Buyers to the right

Equity markets seem to take heart from Wednesday nights comments from the Federal Reserve, along with better than expected manufacturing data from China and Japan. The Chinese Purchasing Managers Index came in at 49.7 against expectations of 48.3. 

So far this year, bonds, equity and commodity markets are all higher than at the start of the year. Despite this stellar performance from all three-asset classes, investment returns so far this year have been lacklustre. Global equity hedge funds have returned circa 2%, according to Hedgefund Intelligence, and balanced equity funds just over 1%. Investor sentiment, as gauged by the weekly AAII survey of individual investors in the US, continues to indicate that over two-thirds of those polled think the market will be the same level or lower in 6 months time. Investor bullish sentiment is currently 30%, against a long-term average of 39%. Day traders continue to run short positions on all the major developed country indices. The bull market appears to remain unloved. 

Bearing in mind the fund managers’ performance into the year so far, we thought it would be useful to look and see what fund managers positions were at the start of the year and see what sectors had performed the best. At the start of the year according to Merrill Lynch fund manager survey the biggest overweight positions relative to history in a fund managers portfolio were autos, travel, financial services and tech. So far this year an equal weighted combination of those 4 sectors would leave you flat on the year. The biggest underweights were oil & gas, resources food and beverage and chemicals, a balanced portfolio of those 4 sectors would have seen you outperform the market. Just goes to prove if you can be brave enough to buck the crowd it can be rewarding. 

As investors continue to question the longevity of the Bull Run, a couple of reports came out to suggest it might continue for a while yet. Merrill Lynch in a weekly report point out that over half the world economy is under zero interest rate policies, central banks will pump nearly $2tn of liquidity into the system in 2014, equity float, due to companies buying back their shares, will reduce by over $500bn. They believe these statistics support the view you are more likely to see a melt up in asset prices rather than a meltdown. The other report came from a survey conducted in Q1 by Allianz Global Investors based on 400 respondents from 51 countries managing a combined $20tn of assets. 30% want to buy more global equities, 21% plan to buy emerging market stocks and just 5% want to sell.

Posted on May 23, 2014 .