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.

NAAIM member firms, consisting of active money managers, are asked to provide a number representing their overall equity exposure at the market close on Wednesdays each week. At Tier1, we have a similar index for systematic strategies. The NAAIM index specifically represents the positioning of active managers.

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We like to use the index as a contrarian indicator when it reaches extreme levels, either above 100% or below 40% exposure to equities. The NAAIM index consistently confirms the challenges of active management. On March 27th, active managers increased their equity exposure to 103%. The S&P 500 topped just a few days later. Now, the active manager community has reduced their equity exposure to 63% – a substantial reduction in a short amount of time, but more importantly, leaving them with significant exposure yet to unwind.

The NAAIM index highlights the difficulty of active management by displaying the tendency of active managers to increase exposure near market tops and reduce exposure after selloffs, potentially missing out on subsequent rallies. This underscores the value of a systematic, disciplined approach to portfolio management.

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

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