Sentiment Update: Individual and Professional Investor Sentiment Diverges

The NAAIM (active money managers) and AAII (individual investors) sentiment surveys were released Wednesday and Thursday respectively. Individual and professional investor sentiment diverged this week as individuals increase their bullish sentiment while professional investors reported a substantial decline in equity exposure.

This week, active managers have, on average, a 58% allocation to equities. This is down from 72% last week. The median allocation fell to 75% while the top quartile of active managers have an allocation of 96% or greater to equities with the bottom quartile at a 50% or less equity exposure. The eight week moving average continued its uptrend, now at 61%, although the steady increase in sentiment from this past July appears to be slowing.

The NAAIM number measures current equity exposure (0% would be all cash, 100% fully invested). Additional detail can be found here.

On the contrary, there is no sign of slowing bullishness in the individual survey conducted by AAII. Individual investors increased their bullish sentiment for the next six months from 50% last week to 51% this week. Bearish sentiment also declined to 21.6% from last week’s reading of 25.2%. The Bull-Bear spread reached 29.6% and the eight week moving average increased to 47.4% both levels last seen in February ’07.

Individual investor sentiment is just into the “extreme” territory (measured as one standard deviation above average) and the 8-week rolling average is also approaching this category. It will be interesting to watch if the divergence between individual investor sentiment and active manager sentiment continues.

For analysis of the subsequent equity returns based on sentiment surveys please see the flowing links. AAII research here and NAAIM research here.

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