Deutsche Bank analysts said in a note that there was a significant shift in equity positioning last week, marking one of the steepest declines in recent years.
The week is said to have seen a sharp reduction in aggregate equity positioning, plunging from a mid-July peak at the top of the historical range to a below-average or underweight level.
The investment bank said positioning, previously sitting at a z score of 1.00 (97th percentile), dropped to a z score of -0.26 (31st percentile).
According to Deutsche Bank, this is the most dramatic cut since the onset of the pandemic.
They explained that the decline in equity positioning was driven by both discretionary investor positioning and systematic strategies positioning.
The bank adds that discretionary positioning fell to a z score of -0.15 (36th percentile), while systematic strategies dropped to a z score of -0.05 (38th percentile).
This shift is said to align with a sharp slowdown in earnings growth, which fell from 11% year-over-year in Q2 to low single digits.
Deutsche Bank analysts noted that if market volatility remains elevated, it could further pressure systematic strategies’ equity positioning.
Sector-wise, Deutsche Bank says positioning in Mega-Cap Growth (MCG) and Technology continued to be cut, reflecting the deceleration in Q2 earnings growth for these sectors. In contrast, positioning in Utilities and Real Estate surged ahead.
Despite the market turmoil, equity inflows persisted for the 16th consecutive week, even increasing from the prior week, while inflows to bond funds slowed, Deutsche Bank noted.
The bank believes the sharp repositioning underscores growing caution among investors as earnings growth slows and market volatility remains a concern.