In June, fund manager equity weightings increased in every region in the world. Exposure is now +48% overweight, the highest since January.
What has been remarkable is how long managers have been highly overweight equities (virtually since the start of 2013). This is longer than any period during the 2003-07 bull market (yellow shading). In the past, after massive overexposure like that seen in the past 18 months, a washout low would be marked by an equity weighting under +15% (green circles). By that measure, equities are still over owned.
In the world's largest equity market, the US, equity allocations increased to +10% overweight in June. Exposure is essentially neutral. Given how strongly the US has outperformed the rest of the world in the past several years, exposure is surprisingly low. It is not over-owned until weightings are +20%.
Remarkably, although US bonds have outperformed SPX so far in 2014, fund managers are still hugely underweight. In June, weightings fell to their lowest in 6 months. If there is a hated asset class, it's not equities, it's bonds.
Globally, managers are not just overweight equity and underweight bonds, they are overweight the highest beta equity (banks, discretionary) and underweight defensives (telecom, staples, utilities).
That is equally true in the US, where tech is the most favored sector, by far, and utilities are still very underweighted.
We have been highlighting managers' prolonged overweight of technology the past several months, saying that tech normally underperforms after it has been strongly in favor for as many months as it has been. The underperformance in NDX from March to May confirms this warning. The good news is that managers are now +22% overweight, down from over +45%; this is close to the lows in 2013 when tech was less than +20% overweight.
Survey details are below.
- Cash (+4.5%): Cash balances declined from 5.0% to 4.5%, which means its back in the 4.4% to 4.8% range its been in since July 2013. Typical range is 3.5-5%. BAML has a 4.5% contrarian buy level but we consider over 5% to be a better signal. More on this indicator here.
- Equities (+48%): A net +48% are overweight global equities. It was +37% in May. After reaching the second highest equity weighting ever in September (+60%), a washout low would be under +15%. More on this indicator here.
- Bonds (-62%): A net -62% are now underweight bonds, a large drop from May (-55%) and the lowest weighting in 6 months. In November, it was the second lowest ever (-69%). For comparison, they were -38% underweight in May 2013 before a large fall in bond prices.
- Europe (+43%): Europe is the most preferred region for the 10th month in a row. Managers are +43% overweight, a sharp increase from +36% overweight in May. Current weighting is close to the +46% overweight in October, which was the highest weighting since June 2007.
- Japan (+21%): Managers are +21% overweight Japan, a sharp increase from +7% in May. Funds were -20% underweight in December 2012 when the Japanese rally began.
- US (+10%): Managers increased their US weighting to +10% from +6% in May. They had been +30% overweight in August 2013 (the third highest US weighting ever).
- EEM (+5%): Managers are now +5% overweight EEM, the highest weighting in 15 months. It had been -31% underweight in March, which was a new low since the survey began in 2001.
- Commodities (-17%): Managers commodity exposure remains largely unchanged the past several months. They were -31% underweight in December, the third lowest on record. Low commodity exposure goes in hand with skepticism over EEM.
- Macro: 66% expect a stronger global economy over the next 12 months, an increase from 62% in March and April. January was 75%, the highest reading in 3 years. This compares to just 40% in December 2012, on the eve of the current rally.