Despite some recent selling, stocks are way up from their October lows. Specifically, they’re up 20 per cent in the last six months.
And stocks have far outperformed bonds. This is important because when this happens, the relative weight of an investor’s portfolio tilts towards stocks. As a result, investors often have to sell stocks in order to rebalance their portfolio to get back to their long-term, strategic asset allocations.
However, big investors don’t plan on doing any selling.
Photo: Citi Investment Research & Analysis
Intentions To Buy StocksCitigroup recently surveyed 115 fund manager clients.
“Fascinatingly, despite the gains thus far this year and the very modest upside to the aggregated target overall, more than 80% want to allocate additional money towards equities, with US equities leading the charge,” said Citigroup’s Tobias Levkovich. See the chart below.
The hunger for stocks might not actually be too fascinating if fund managers are already underweight stocks. JP Morgan’s Tom Lee recently discussed this with Bloomberg’s Carol Massar.
“Something that’s been puzzling about this rally that started in March ’09 is that the public hasn’t really participated,” said . “They pulled $300 billion out of the equity markets over the last three years. And trading volumes have been low, which means the institutions haven’t really been participating in this rally either. Institutional volumes actually continue to shrink.”
Low volume is often interpreted as a lack of confirmation – a bearish signal.
But some strategists have pointed to low volume as an opportunity.
“While many bears cite the lack of daily trading volume as a sign that the market lacks real conviction about these positive signs, it can also be argued that this reflects just how many investors have abandoned the equity culture and can still return,” said Jim O’Neill, Chairman of Goldman Sachs Asset Management.
In other words, low trading volumes also means there is cash on the sidelines, or that investors have the capacity to buy stocks.
So if Citi’s survey participants put their money where their mouth is, then the huge blue bar in the chart mean that “confirmation” will come in a big bullish way.