Equity exposure is not extreme, Deutsche Bank analysts say

Investing.com — Equity positioning has remained relatively stable over the past three weeks, maintaining levels well above average but not reaching extremes, according to Deutsche Bank (ETR:).

The firm observed that while discretionary investor positioning has slightly retreated from its post-US presidential election surge, it is still elevated.

Systematic strategies, on the other hand, have continued to climb, reaching their highest point since before the pandemic outbreak.

“Volatility control funds increased their equity allocation close to the historical maximum (84th percentile), as equity volatility continued declined,” Deutsche Bank strategists said in a note.

In terms of sector positioning, both Materials and Healthcare remain below average, with Materials continuing to lag.

Conversely, positioning in and small caps is described as elevated, with Consumer and Industrial Cyclicals showing an above-average and rising trend.

Energy sector positioning hovers near average, while Staples has seen a decline yet remains elevated. Utilities and have returned to mid-range levels.

Despite the sideways movement in positioning, equity funds have seen substantial inflows, Deutsche Bank notes.

Following a period of significant inflows totaling $140 billion over four weeks, the pace has slowed but remains strong with $8 billion in the most recent week, consistent with the year-to-date average.

“We expect inflows next year to remain robust, a key driver of potential upside along with buybacks, while positioning is unlikely to be a meaningful contributor from current elevated levels,” the bank’s strategists led by Parag Thatte said.

Regionally, the United States attracted the majority of equity inflows this week, amounting to $8 billion.

Global mandate funds and emerging markets also experienced inflows, whereas Europe faced significant outflows, marking their worst performance in two months.

Meanwhile, bond fund inflows have diminished, with government bond funds experiencing their heaviest outflows in a year, although investment-grade funds have seen a notable uptick, achieving their strongest inflows in seven weeks.