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Short vol overtakes Bitcoin as PMs’ most crowded trade

Short vol overtakes Bitcoin as PMs’ most crowded trade

Short volatility has overtaken being long either Bitcoin or FANGs as the most crowded trade in today’s market, according to global fund managers.

That is one of the headline findings of the latest Bank of America Merrill Lynch Fund Manager Survey, which canvasses 213 panellists with $591 billion in combined assets under management.

Being long Bitcoin had risen to be the most crowded trade in fund managers’ eyes last September, when it overtook exposure to tech stocks as a major cause for concern.

However, in the latest reading, 28% of respondents said being short volatility was now the most over-played investment idea, which compares to 26% who singled out FANGs and BATs, while 24% said Bitcoin remained overcrowded.

The other headline finding saw investors at a five-year low regarding concerns over a market correction. The number of managers buying protection against a near-term correction has fallen to 2013 levels, with less than 50% of respondents defensively positioned.

This confidence is supported by investors believing that the equity market bull can run for another two years. Here there is a strong switch from the December report, where the majority believed Q2 2018 would mark the top and now the consensus is it will take place in 2019 or beyond.

In terms of top tail risks, inflation and bond crash replaces a policy mistake by the Fed or ECB as the top tail risk for 2018. This saw 36% of respondents name it as the biggest risk, with it not having featured as a concern in the December 2017 survey.

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