A Record Number Of Investors Are Hedged For A Crash
by Tyler Durden
ZeroHedge.com
Tue, 05/14/2019
Unlike the chaotic, disorderly Q4 market selloff which saw the worst performance by professional investors since the financial crisis, there was an almost resigned acceptance to the sharp drop in stocks in the days after Trump reignited the trade war a little over a week ago. There may be a simple reason for that: while it has been duly noted that for much of 2019 investors had refused to rush into risk assets, over the weekend JPM estimated that both institutional and retail investors were as long stocks as they were ahead of the Q4 bear market crash. However, there is one difference – unlike six months ago, this time investors were hedged.
According to the latest Bank of America Fund Manager Survey which took place in the May 3-9 period, and which polled 250 panelists who manage $687BN in AUM, a record 34% of investors said they have taken out protection against a sharp fall in equity markets over the next three months, the highest level ever on an absolute and net basis (net -21% say they have taken out protection).
Yet while skeptical investors are only dipping their toe in a rally they don’t trust, only thanks to record downside hedges, BofA’s CIO Michael Hartnett notes that while investors are well-hedged, they are not positioned for a trade deal breakdown, and the full “risk-off.” Meanwhile, the BofA strategist sees rising recession risks, Fed cuts, GT10 <2%, SPX <2600, CNY >7 among the possible market and policy responses.
Furthermore, as predicted two days ago when we noted that while trade war was the #1 “tail risk” over past year, said “fear” peaked in July’18, and we said we “expect this to quickly change when the latest Fund Manager Survey is released”, and sure enough, in the latest FMS, the #1 tail risk is once again “trade war”, only with far more enthusiasm: +29 points. According to BofA, this was the “biggest MoM jump in Trade War (+17ppt) as top “tail risk” since June to July 2018 (+29ppt); now topped the charts for 11 of past 12 survey” but still concerns about trade war risks remain well below the peak of 60% in Jul’18. Give it a few more months.
The Rest…HERE
