Chart of the Week

Sentiment Depressed Right Now

by Michael Hayhoe

Kitchener - Last week's chart showed that overall stock market bears are pretty much extinct. This week chart shows where the few bears that are left are hiding. Today’s chart of the day focuses on sentiment in the basic materials sector and is courtesy of Merrill Lynch research. This survey was conducted in a period between 2nd to 9th April 2015 with a total of 177 panelists, with $494 billion of assets under management.

According to the survey, global fund manager allocation towards global materials declined sharply in the month of April to net 27% underweight from net 16% underweight the previous month. As we can clearly see from the chart, sentiment is very depressed right now. Merrill Lynch states that the current allocation is 1.8 standard deviation below its long term average.

Furthermore, the overall commodity and natural resources theme is very much disliked by global money managers. Commodity allocation is unchanged for the third straight month and remains at net 20% underweight. That is 1.2 standard deviations below its long term average and even more interestingly, fund managers remain underweight commodities for the 28th month in the row.

Very simply, this is where all the bears are hiding. They hate basic material companies, think gold miners, copper miners etc. When the view is inflation is dead, who wants to own a resource company? Isn't it fascinating how sentiment changes? 5 years ago these were the "belle of the ball", now they are the frog prince. If you want to own what others hate, this would be a good place to start looking. Remember what happened when the princess kissed the frog!

Mike Hayhoe BSc, CIM, is Branch Manager & Senior Investment Advisor for Canaccord Genuity Wealth Managementis . A local Investment Advisor with 20 years of experience who leads a small independent team that loves working with great people to help them meet their financial goals.

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