Tuesday, 14 July 2015

What the average fund manager thinks...(part 1)

I noted a month ago (link here) that taking a slightly contrarian stance with a well-known fund manager survey suggested that:

'during the summer the trick is to be more active despite it maybe feeling uncomfortable to be so as the beach calls'

So how about this month's offerings?

No surprises where the biggest 'tail risks' are given the macro newsflow of the last few weeks...step forward Greece (aka 'Eurozone breakdown') and China. Strikingly the 'Fed falls behind-the-curve' option has completely...fallen off a cliff.  That says something about the evolution of the investment backdrop over the last month: 

Consistent with this were also the continuing observations from last month (see the link above) that:

cash levels of 5.5 per cent are at their highest levels since December 2008, and more investors than at any point since February 2008 have taken out protection against equity market falls in the next three months.

I have been really surprised in the recent bout of market volatility that gold has not performed better and reflecting how out of favour the shiny metal is for the first time since the depths of the financial crisis perceived on a net basis as undervalued.  I would agree with this.  

Back to the Federal Reserve and interest rates for the next graphic and consistent with the aforementioned fading of the fear that the Fed gets behind-the-curve is the increased focus on the fourth quarter rather than the third quarter for a first interest rate increase.  I would agree with this (in fact I still of the view that actually 2016 may be more accurate).  
Finally the US dollar and US high yield remain the two areas with the most perceived 'crowded trades' although the latter has gained a little at the expense of the former.  For me this makes perfect sense: in a world of greater creditor versus debtor tension this makes perfect sense. I am cautious of high yield too.  

 Pulling it all together growing consensus caution suggests the opportunity for stock level and thematic opportunities (like gold).  We should not forget sectors either...but more of that in part two...

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