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I had never had one before and haven’t since, but two years ago, for a brief couple of months, I was the bemused owner of a six-pack. Yup, just like Ken’s half dozen, only furrier. And not orange.
A diet I invented actually worked! So forget about Novo Nordisk becoming Europe’s biggest company this week thanks to the wonder drug semaglutide. Jabs — ugh. My obesity cure is free and specifically designed for investors who like pubs too much.
It is called the CNBC diet — named after the rolling financial news channel ignored on trading floors across the world. I was a regular guest in New York during the financial crisis and you just cannot believe how white the presenters’ teeth are in real life. So inspiring!
The letters denote four things to avoid. Chocolate, nuts, bread or booze (both if you’re hard core) and crisps or chips depending on where you live. Ditching these isn’t easy because let’s face it, they are some of the finest pleasures in life — especially when consumed together.
But you’ll be underweight before this quarter is done, I guarantee it. And bang on trend given the news this week on asset class positioning. With four months to go until the end of 2023, investors seem to be cutting everything from their portfolios.
We just learned from Refinitiv Lipper data that professional money managers have been selling US equity funds for five weeks in a row (no doubt after reading my columns explaining why they should do so). Short positions are also sky-high.
Likewise, almost three-quarters of global fund managers surveyed in August by Bank of America reckon that European equities will weaken over the coming months, up from two-thirds in July. They also don’t like China, the UK, emerging market credit and US bonds.
It’s hard to figure out what is left. Especially as the same survey said cash positions have dropped to levels not seen for 21 months. What the hell are they buying? And apparently the overall mood is improving on prospects for the global economy and inflation, according to the survey.
Confusing. So are flow data and surveys such as these useful indicators or just noise? Sure, I often joke that you want to do the opposite of what everyone else is doing. But in aggregate that’s impossible — there are two sides to every trade.
For example in early July Goldman Sachs’ prime brokerage data revealed that hedge funds had their lowest weighting in US stocks for a decade, while bets on European equities were at record levels. Oopsie for them — but whoever bought and sold to them respectively did well.
It makes sense to focus on institutions, though. They are supposedly the experts. However, does the fact that money is flowing into one of their products have predictive power? And should we take note of changes to asset class weightings?
The latter is easy to answer because we know that most active managers underperform their benchmarks. Therefore, following their overweights and underweights at a portfolio level is a waste of time on average.
So ignore the fact that I ditched my entire S&P 500 position last week. But at least I warned you. The other trouble with position data as above is they are backwards looking. By the time you see them the manager is set — or already out.
Whether flows are useful to track is more nuanced. Sure, there is a strong positive correlation between them and security returns. In the US, a seminal paper by Vincent Warther in 1995, confirmed a strong relationship between the two.
But correlation is not causation. Another factor may be moving both inflows and prices up and down. Or a positive correlation may be heavily skewed in one direction. A slew of research in the early and mid-1990s, for example, showed that money followed whatever had performed well the previous year.
We all know investors chase rising markets and flee declining ones. For equities the correlation is as high as 75 per cent. Unfortunately this is often the worst thing to do, with funds brimming with money when bubbles pop, or they are empty just as an asset class is most attractive.
You see this most clearly comparing so-called dollar-weighted returns with time weighted returns. It turns out that some of the most successful products end up in the red overall because the biggest inflows come near the top, whereas relatively little money enjoyed the ride from the start.
Trying to figure out if net flows cause markets to move is harder. It matters though because investors and indeed regulators often worry about negative doom loops during a sell-off. Might everyone rushing to sell a fund push prices even lower?
Not according to research by the Federal Reserve Bank of New York. The authors looked at monthly net flows and returns (meltdowns are invariably shortlived). Using a statistical technique to mitigate other influences, they found little evidence that short run price movements affect flows and vice versa.
This makes me happy. I would hate to think the selling of my S&P 500 ETF helped to push the index lower this week. Many readers still love US stocks judging from my discussions with many of you at the FT Weekend Festival last Saturday.
Good luck, I say! In the meantime I have reallocated the US proceeds across my other holdings. My portfolio is at a record high value. Time for a beer and some dry roasted peanuts. And maybe a packet of crisps.
The author is a former portfolio manager. Email: stuart.kirk@ft.com; X: @stuartkirk__
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