The volatility in markets since mid-April, when bond yields spiked, has led to considerable positioning shifts across asset classes. Similar to the taper tantrum, the positive correlation between bonds and equities likely exacerbated portfolio volatility for cross-asset investors. Analysts find that positioning in bonds has been cut back considerably by asset allocation funds, bonds mutual funds and relative value hedge funds. However, hedge funds are overweight equities while equity mutual funds are underweight. In particular, positioning in European equities is once again extremely low. Finally, the surge in USDJPY has coincided with a surge in yen shorts back toward record levels.
Barclays evaluates, positioning across investor segments and asset classes to better understand what may have driven price movements throughout the market volatility, and sees compelling reasons for the relative outperformance of equity to continue, while the rates strategists see value at current levels in the US 10y. Cleaner positioning suggests that fundamentals, rather than technicals, should drive asset prices henceforth.
- Asset allocation funds are underweight bonds, neutral equities and overweight cash.
- Bond funds have cut their beta exposure back to average levels and have modestly outperformed the benchmark, unlike during the taper tantrum of 2013.
- Relative value hedge funds also reduced bond exposure considerably and absolute performance has been flat through the volatility.
- Aggregate equity positioning is close to neutral, with hedge funds overweight and mutual funds underweight; net call option exposure has been pared, suggesting hedge fund exposure is being reduced.
- Europe positioning is again very underweight amid Greek fears.
- Sector positioning is now less defensive and more cyclical, with financials a sizeable overweight.
- Yen positioning had an extreme increase in net shorts; after being pared, US dollar positioning is still very long.
- Gold and silver net longs increased, despite the rise in real yields.
