The latest edition of BofAML’s closely-watched global fund manager survey is out and there are a ton of notable highlights.
These surveys are of course produced by the bank’s Michael Hartnett, a name regular readers are familiar with. It was Hartnett, you’re reminded, who on January 26 told folks that his proprietary “Bull & Bear Indicator” had just flashed a sell signal. That, just days after the January edition of the global fund manager survey flagged “short vol.” as the most crowded trade on the planet.
That was all looking pretty prescient two weeks later, after global equities careened into correction territory and the short VIX ETPs blew up, leading the Seth Golden crowd to ponder the depressing prospect of going back to a life spent making the cigarette break schedules at the local Target.
Subsequently, Hartnett would warn that “long FAANG” had replaced “short vol.” as the most crowded trade on Earth (primarily because the short VIX ETP massacre cleared the deck). That too proved prescient as tech would promptly stumble on regulatory concerns in late March. Since then, FANG has fallen into a bear market and as noted on Monday evening, the FANG+ index is on pace to log a fourth consecutive monthly decline.
Well, in the December edition of the survey, “Long FAANG+BAT” has finally been dethroned as the most crowded trade. You’re reminded that in November’s survey, fund managers showed a lot less conviction with regard to identifying that trade as the most crowded, presaging its imminent ouster from the dubious top slot. Here’s the new list:
And here’s the breakdown:
So, after the October drawdown and subsequent November chop during which Apple was soundly routed, the FAANG crowd hit the exits and now, long dollar takes the top slot for the first time since April of 2017 when Donald Trump told the Wall Street Journal that the greenback is strong due to how much faith the world has in his leadership skills. As a reminder, dollar longs came off a bit in the week through last Tuesday, but in the week prior, net length was the most stretched since January of 2016.
This positioning/crowding is set against a backdrop of fading expectations for Fed hikes and rampant pessimism about the U.S. economy. Those two factors (the assumption of a dovish pivot from the Fed and decelerating U.S. economic growth) underpin the now consensus view that the dollar has likely peaked. But clearly, that is not the consensus among some folks, even if it’s the prevailing view on Wall Street.
If you’re wondering whether there was also a shakeup at the top of the “biggest tail risk” list, the answer is “no.”
Despite the tentative truce struck in Buenos Aires on December 1, “trade war” remains at the top tail risk for investors, and because this survey was conducted from December 7 through December 13, the fact that “trade war” not only retained the top slot, but in fact with more conviction, is a clear indicator that fund managers are not at all confident in Trump’s “deal”.
A quick look at the breakdown shows that not only are investors more worried about the trade war in December than they were last month (i.e., more worried now than they were before the “truce”), they are actually less worried about QT than they were in November, even as Trump and his surrogates continue to insist that tighter monetary policy is the proximate cause of market volatility (“less worried” is a bit misleading here, but it gets the point across – technically, respondents were less inclined to identify QT as the top tail risk).
So, if you’re wondering what 243 fund managers controlling nearly $700 billion in AUM are more worried about in terms of tail risk, the answer is “Donald Trump’s ‘greatest’ tariffs” not “QT”. And the margin isn’t even close, as the above visual makes abundantly clear.
Of course there’s a distinction between “QT” and the more narrowly construed “Fed hikes”. Clearly, everyone is indeed concerned about tighter U.S. monetary policy, but that doesn’t change the overall thrust of anything said above.