Small-Cap Value Set To Outperform

There’s no asset class too much money won’t spoil. ~Barton Biggs via A Hedge Fund Tale of Reach and Grasp

In this week’s Dirty Dozen [CHART PACK] we look at the latest Global Fund Manager Survey, talk some more about ALL the cash that large funds are sitting on and why that’s bullish for stocks, and then make the case for why rising free-cash flows will drive a reacceleration of stock buybacks in the coming quarters. Plus, we discuss some really interesting charts showing demographic splits and what they could mean for the equity risk premia, plus a whole lot more…

Let’s dive in.

***click charts to enlarge***

  1. The September BofA Global Fund Manager Survey came out last week. Below is the summary with key takeaways highlighted by me.

  1. The UK, energy, banks, staples, and Japan are the contrarian longs.

  1. Markets are a pendulum swinging from one extreme to another…

  1. The last few weeks I’ve been noting the wide dispersion in extreme positioning amongst players in this market. Retail and small funds are extremely long while large institutions/hedge funds have missed out on the incredible rally off the March lows and are subsequently sitting on significant piles of cash (as noted in the most recent BofA FMS).

Well, here’s another chart confirming the large piles of cash. UBS writes “US active fund positioning is 1.8stdev below average… Cash levels are still elevated. Institutional money market flows tend to follow the Fed rate with a 1yr lag, and the cut to zero earlier this year should mean more cash flows to equities over coming months. Cash levels are supportive at levels as a % of equity plus bond market cap not seen since 2012.”

This is one of many reasons why the downside in equity markets is likely limited over the short-term and the longer-term path of least resistance remains up.

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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