Let the performance chase begin!
In the past month, Wall Street consensus has gone from net short small cap stocks to as bullish as they've been all year, according to non-commercial CFTC net futures and options contracts data, which shows institutional investor positioning across a variety of assets. That's unsurprising considering the Russell 2000 is up 17.7% year-to-date.
Similarly, as the 10-year U.S. Treasury yield hit 17-month highs recently, investors stampeded into a net short Treasury position. In short, heading into year-end, active money managers who aren't beating their benchmark are forced to pile into the index and pad their returns.
And they're off...
As you can see in the Chart of the Day below, what typically happens is Wall Street is on the wrong side of a trade and chases these big moves. Case-in-point, check out the CFTC positioning on the 10-year Treasury heading into July and the all-time lows in bond yields. Wall Street was short. Then yields tapped the lows on July 6th and investors got long.
(That's called chasing your own tail. Don't do that.)
What about now?
Here's analysis from Hedgeye CEO Keith McCullough in today's Early Look:
"Looking at the most recent futures & options positioning (non-commercial CFTC data) here are some big callouts:
- Russell 2000 net LONG position went to +38,861 contracts last week = +2.1x on a 1yr z-score
- 10YR Treasury Bond net SHORT position went to -112,382 contracts last week = -1.7x on a 1yr z-score
In English, what that means is that there was a massive performance chase in small cap value where consensus had to chase the ace (Russell 2000 shot up to +18.6% YTD in the week preceding the net LONG position ramp) and get out of what was lagging."
Don't be consensus. Don't chase the big macro moves after they happen.
