Sidelined Investors Joining This Rally

Sidelined Investors Joining This Rally

$DIA, $SPY, $QQQ, $RUTX

FLASH: The Pain Trade is Higher!

Professional investors who have missed this global stock rally this year, are still worry about getting on the bandwagon too late

Money managers are strategies including derivatives, defensive and/or dividend stocks are being touted as a way out.

Fund manager have pulled over $30-B from global equity funds since the start of the year. That left them out of the action, as the MSCI AC World Index climbed 11% over the same Frame. With the average equity hedge fund is up only 6% YTD, some smart money has under-performed.

The fear in professional investors’ mind is now of the move going further to the Northside.

The mindset continues to be defensive, but runs the risk of bumping up against this tipping point where the psychology of performance-chase could take hold. The low cost of derivatives offers an opportunity, with options cheap enough to make a good replacement for stocks when used correctly

The steep fall in global stocks in December, which included the worst month for US equities since Y 2009, was enough to send many investors to the sidelines.

A wave of uncertainty overcame the market, from concerns about the US-China trade dispute, to the then Hawkish outlook for the Fed, to worries about global growth and downgrades to corporate earnings.

Then trade talks progressed and the Fed took a Dovish turn.

The S&P 500 Index reversed and is up 19% from Christmas Eve through Tuesday. Yet enough uncertainty remained, about trade and the global economy for starters, that those who had sold down risky positions were reluctant to come back in and bet against the last 8 week Bull leg.

Investors should look to hedge their most worrying downside risks or seek to express their positive views in a safer way — such as with income stocks, said the head of trading strategies atUBS Global Wealth Management’s CIO in an e-Mail Wednesday.

“For instance, in Europe, where the next few months are still filled with uncertainty, we have suggested expressing long equity positions via dividend exposure,” he said. “Not only did dividend futures get hit much harder than the broad market, but we also think that many or most European companies would be reluctant to cut dividends if the economy slows.”D

A senior UniCredit SpA strategist is also pushing a defensive approach, in his case via food and beverage, healthcare, telecommunications and utilities stocks.

“We consider it highly likely that global equity markets have almost exhausted their relief potential for the 1st Quarter,” he wrote in his note. “In the current environment of slowing global trade, and as long as defensive sectors report stable or even increasing earnings, defensives should demonstrate their superiority over industrial sectors.”

Investors who feel it is too much of a battle to try and catch up with the rally have 1 more option: The pain trade is definitely higher at marks where people are actually hoping the market fails.

Editor’s Note: Portions of this story 1st appeared on Bloomberg on 27 February 2019 please click here.

Stay tuned…

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