Bank of America’s (BofA) fund manager survey isn’t the only metric suggestive of investor caution. Positioning and sentiment is “not as bullish as price action suggests”, argued Barclays analysts in a recent note. Positioning is less depressed than three months ago but remains “far from bullish”. Recent equity inflows have been “muted”.
Looking at hedge funds, their equity exposure has increased but remains low relative to historical norms. Retail sentiment, as measured by weekly American Association of Individual Investors (AAII) polls, has become more bullish recently but remains “far from complacency levels”.
Like BofA, Barclays suggests the pain trade is still on the upside for risky assets. One might think Europe is an exception here, given the extent of the European market rally – the Euro Stoxx 600 has advanced almost 20 per cent since bottoming in late September.
In fact, Barclays suggests the potential for further gains is “particularly” obvious in Europe, saying the recent rally seems more a case of short sellers covering losing bets than fund managers significantly upping their allocations to the region.
There has been a “small” pickup in US investors’ allocation into Europe lately, says Barclays, but they are “very negligible compared to bearishness over the past decade”.