70% Of Fund Managers Say The Economy Is Late Cycle

Review Of The Fund Manager Survey

It’s useful to check the Bank of America fund manager survey to see where money managers are positioned. The great thing about the fund managers survey is it provides depth to your understanding of the market because fund managers often have the opposite opinion of the market. You can either fade their positioning or follow their opinion.

What I find works best is to formulate an opinion on asset classes before checking what the market thinks. This is similar to how Warren Buffett looks at a firm’s financials before checking the price of the stock. If the stock price is less than his estimated valuation, he buys. If it’s higher, he waits. Similarly, review the fundamentals that drive sectors before looking at surveys and the recent price action. My biggest mistakes have come from simply going against the status quo. Just because a trend is in place doesn’t mean you should fade it. I wasn’t necessarily trying to fight the market, but my stance was influenced by the price action. When you start with analysis, you only swing at the pitches that are hit-table. You only buy the assets that you like which are falling and vice versa for shorting.

The first chart shows the month over month positioning in a few assets. As you can see, the cash positioning has increased by 12%. This survey took place during the panic selling which is great because it shows you the psychology of the managers at the height of the storm. This cash change is a big reversal from the record low cash positioning in January. Equities lost 12% which means managers went from equities to cash. The timing of the selling determines which managers had a good week. Some started selling at the peak and some sold at the trough. Mistiming the selling by a few days can hurt a manager’s performance for the year. The selling in commodities is interesting because some fear heightened inflation will cause the Fed to raise rates. The Bloomberg Commodities ETF fell from $200.52 on January 26th to $188.51 on February 9th. This was partially driven by the selling in oil which I discussed in a previous post.