Trend followers stage recovery as stretched S&P, Nasdaq longs fuel gains
Investing.com -- Discretionary investors have returned to neutral equity positioning, while systematic strategies have edged further overweight, Deutsche Bank (ETR:DBKGn) said in its latest positioning update.
Aggregate equity positioning rose to the 67th percentile, with discretionary positioning at the 47th percentile and systematics at the 87th.
Discretionary investors had shifted to neutral in February after tariffs were announced on Canada and Mexico, moved underweight as they escalated, and then recovered to neutral following policy relents.
However, positioning remains capped despite “earnings growth, consensus earnings revisions, macro growth and data surprises” all pointing to more upside.
The bank said the reluctance suggests investors are still focused on second-half risks, “especially the effects of tariffs on growth and inflation that are widely perceived as having yet to manifest.”
Investor sentiment fell to a two-month low, flipping from slightly net bullish to modestly net bearish, with bearish responses at a three-month high.
At the same time, rates volatility has dropped to near a four-year low, breaking its usual inverse correlation with discretionary positioning.
Weekly flows revealed a sharp divergence between asset classes. Equity funds posted their largest outflows since December 2022 at $41.7 billion, ending a seven-week streak of inflows.
The bulk came from U.S. funds, which saw $27.7 billion exit, while broad global and emerging market funds also saw withdrawals. Telecom (BCBA:TECO2m), technology, industrials, utilities, and materials attracted inflows, but financials, healthcare, consumer goods, energy, and real estate recorded outflows.
Bond funds raked in $28.5 billion, the highest since June 2020, led by broad-mandate and credit funds. Investment-grade inflows hit their strongest level since January 2024, while high-yield inflows also increased.
Money market funds saw $106.8 billion in inflows, a seven-month high.
By sector, positioning is overweight only in utilities, neutral in mega-cap growth and tech, real estate, energy, and consumer cyclicals, and underweight in financials, industrials, materials, consumer staples, and healthcare. Healthcare remains near extreme lows.