02/05/24 09:20 AM EST

NAAIM Ticking Closer to Over-Exposure

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

The chart depicts the National Association of Active Investment Managers (NAAIM) Exposure Index, which measures active investment managers' average exposure to U.S. equity markets. The index is considered a contrarian indicator at extreme levels, which means that when the index readings are exceptionally high (above 90), it suggests that investment managers are heavily invested in the market, indicating potential over-optimism and a possible market top. Conversely, when the index readings are exceptionally low (below 40), it implies that managers are significantly under-invested, indicating potential over-pessimism and a possible market bottom.

Last week, active managers moved equity exposure up to 87.36% of their maximum exposure, the third-highest weekly exposure in the previous 10 weeks. For reference, the average for last quarter was 67.81, so active managers are within a stone's throw of being at their maximum. In the NAAIM theoretical dynamic portfolio, active managers are 9.92% overweight equities and -14.88% underweight fixed income. Not quite at extreme exposures, but very close; we will update you on Thursday when the latest survey is released.

Learn more about the Market Situation Report written by Tier 1 Alpha.