Bank of America-Merrill Lynch (BAML) released its latest Global Fund Manager Survey (FMS) for June this week, a report that captures the views of over 200 individuals on what’s happening in markets.
They carry some clout, too, managing $US525 billion in funds, meaning it’s a more than useful report for all investors, big or small, contrarian or a trend follower.
The FMS always creates a talking point, crammed full of interesting charts on everything markets.
One chart that always garners a lot of interest is the “most crowded trade”, essentially capturing what trade fund managers believe carries the largest lop-sided positioning.
As such, for a contrarian investor, it’s always of interest.
Here’s the chart for June.
Being long the Nasdaq Index in the US is currently regarded as being the most crowded trade, with 38% of fund managers nominating it as the most crowded trade, more than double second-placed long US and European corporate bonds at 15%.
After such as stellar run for tech stocks, and with many starting to question current valuations, it helps explain why some believe that a correction, or worse, may be on the cards, especially with many investors already positioned the same way.
However, just because fund managers think positioning is crowded, does it mean that a pullback is likely to follow next?
History provides mixed messages on that front.
This next chart shows the evolution in the most crowded trade in the FMS since
Prior to “Long Nasdaq” being regarded as the most crowded trade, it was previously being long the US dollar.
Clearly, as a contrarian indicator, it performed well on that front — the US dollar has been slammed recently.
Being short emerging market stocks was also regarded as being a crowded trade in the past, and they too have soared in recent months.
Again, a big tick for contrarians.
However, being long quality stocks was also regarded as being a crowded trade not all that long ago, and they have only continued to go from strength to strength in 2017.
So the FMS doesn’t have a perfect track record recently, but it does provide something of an early warning sign that a pullback in tech stocks could be on the cards.