There was very little change since October. Overall, fund managers remain very bullish on risk. In September, exposure to global equities was the second highest since the survey began in 2001; it is only marginally lower now. What is particularly remarkable is how long managers have been highly overweight equities (virtually all of 2013). This is longer than any period between 2003-07.
Fund managers are so confident in equities, that they have very low protection against a sharp fall, similar to levels in January and April 2010, February 2011 and earlier this year.
Meanwhile, exposure to fixed income is now tied with April 2006 (arrow) for the lowest ever.
Fund managers are not just overweight equity and underweight bonds, they are overweight the highest beta equity (tech, banks, discretionary) and underweight defensives (telecom, staples, pharma) as well as cash. For example, their current exposure to industrials is the fifth highest on record and 1.6 standard deviation above its 10 year average.
In the past, when managers have been this overweight growth sectors like industrials, those sectors have underperformed until their exposure has been reduced. Conversely, when their exposure to safer, income producing sectors like consumer staples has been this low, those sectors have outperformed. So, while current (bullish) market psychology is biased towards high beta, lower beta is likely to outperform in the months ahead.
Managers have their largest overweight position in Eurozone equities, up more than 170% since August. US equities had been the preferred region the past several months, but exposure was reduced first due to taper fears and then debt ceiling fears.
Emerging markets had been outperforming SPX over the past several months while managers were still 10% underweight. Exposure to emerging markets in August, when the rally was still getting started, was the lowest since the survey began in 2001. Performance dropped to parity again in November with fund managers still just 1% overweight. This is still 1.2 standard deviation below the 10-year average.
You can see from the data that it should mostly be looked at from a contrarian perspective. Fund managers were overweight EEM more than any other market at the start of the year, and it was the worst performer until August. In comparison, they were 20% underweight Japan in December and it was the best equity market by far through May. Now, the big overweight is in Europe.
Survey details are below.