The new edition of BofAML’s Global Fund Manager survey is out, which means we get a fresh look at what folks told Michael Hartnett about the “most crowded trades”.
Hartnett has been flagging risks for some time now and notably, he said the following late last year in his 2018 outlook:
We forecast a H1 top in risk assets as the last flames of QE, US tax reform and robust EPS incite full capitulation into risk assets
Volatility…peak positioning, profits, policy = peak returns and trough volatility; 50-year low in stock volatility, 30-year low in bond volatility likely to be followed by flash crash (à la ’87/’94/’98) in H1.
Well by God, that could scarcely have been any more prescient. The full capitulation into stocks came in January when equity funds saw their biggest inflows on record and the volatility trade blew up and triggered a flash crash less than a month later.
And just to add to the list of shit Hartnett has nailed recently, if you look back to his January fund manager survey, “short volatility” was flagged as the “most crowded trade” for the first time in the poll’s history. I mean technically, that’s the fund managers “nailing it”, but you get the point. At the time, Hartnett wrote this: “vol spike imminent.”
Well fast forward a month to February and “Long FAAMG+BAT” had supplanted “short vol.” at the top of the list.
That ended up proving pretty prescient too in light of this week’s Facebook turmoil and considering what that turmoil might entail for the market’s tech darlings going forward.
Ok, so that brings us to the latest installment and “Long FAANG+BAT” remains the most crowded trade. And now there’s more in the way of conviction:
As for the biggest tail risk, “trade war” tops the list for the first time since January 2017:
Here’s the more granular breakdown:
So will Hartnett’s work prove to be as prescient with regard to FANG+ as it was with short vol.?
Stay tuned to the ongoing Mark Zuckerberg soap opera to find out if “buy the damn robots” remains a viable “strategy.”