ZeroHedge had an interesting article about the very low turnover in hedge funds in the third quarter, only 26%. The title of the article includes the word paralyzed but the text rules out complacency. Instead, the conclusion seems to be that the market is going up in a way that just should not be, summed up as follows:
…simply paralyzed, as they no longer have a grasp of financial “logic” when it is all superseded by central bank liquidity injections, and as such most trades feel fake, forced and just part of the FOMO charade to avoid losing one’s job.
The article notes that a range of expectations from “extremely aggressive to bearish” has served to compress volatility. While this was a big point in the article as market participants are clearly trying to understand why the VIX and volatility are so low, extremely divergent opinions always exist and that they are just now “compressing” volatility doesn’t hold water.
Hedge funds are obviously very different from do it yourself investors and advisors who service individual investors, but it is worth exploring for retail sized account. Earlier this year, Eddy Elfenbein from Crossing Wall Street reported the following:
At one point during June, the S&P 500 had a run of 16 days in which the index closed higher or lower by less than 0.3% 13 times. Eight of those times, that change was less than 0.1%.
Anyone even vaguely connected to the CBOE Volatility Index (VIX ) knows that it has spent dozens of days this year below ten after having only done so a handful of times in its more than 20-year history. There are countless other stats being cited (look at your various social media feeds) about how long it has been since there has been a decline of X%, how long the bull market has been going compared to previous bull markets and so on. Contrarian implications notwithstanding, the market has gone straight up very slowly.
I’ve disclosed many times that the portfolio I manage for clients is mostly a mix of individual issues and narrower ETFs. If you do anything remotely similar, how have you done this year? How have each of your holdings done? How has the overall equity portion of your portfolio done in relation to the roughly 16% gain for the S&P 500?
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