I have been meaning to write about this, but other, more important things seemed to get in the way. The latest BoAML Fund Manager Survey shows managers to be well overweight risk and equities (via The Telegraph):
Bank of America’s monthly survey of world fund-managers shows that investors have their second highest allocation to stock markets in thirteen years at 61pc. It is led by shares in technology, energy, and even banks, and is stretched to a net 35pc overweight in Europe. “The summer 'melt-up' is likely to be followed by an autumn correction,” it said.
Four contrarian trades
Further, the report suggested four contrarian trades that appeared somewhat intriguing:
Bank of America recommends four contrarian trades (for the brave only of course, not for Welsh widows) based on herding effects. Go long bonds, and short equities; long the US dollar / short sterling; long telecoms (the most reviled equity group), and short energy; and long emerging markets/short eurozone.
When I consider contrarian "value" trades, I prefer to look for entry points where there is not only "value", but a positive catalyst that propels the trade in the right direction. When I evaluate the four from a technical perspective, I find one to be in that category, two that appear to be nearing a trade setup and one in a wait-and-see mode.
The first chart shows the long Emerging Markets (via iShares MSCI Emerging Markets ETF (ARCA:EEM)) and short eurozone (via SPDR Dow Jones Euro STOXX 50 ETF (NYSE:FEZ)) equity pair trade. Note how EM equities have bottomed out and begun a relative rally against eurozone equities - that is the positive catalyst that I like to see.
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