The Most Crowded Trades in the World

The Herd mentality has always fascinated the investing world. The funny thing with crowds is that every investor considers themself as being out of the group, while simultaneously looking for clues about what the crowds are trading/investing.

Many indicators exist which tracks the herd or how to trade against them. From volume indicators to following the smart money to spotting what retail traders are doing – there is always an indicator that tells you where market volume is heading towards.

One of such reports is the Bank of America Global Fund Manager Survey. It offers a glimpse into the investing world, what trades are most crowded, and also offers a comparison between periods. This way, trending conditions are also visible, helping to form an idea about what the market participants are doing.

What People Traded in the Last Months?

The first thing that strikes the eye in the BofA survey is the long U.S. tech stock exposure. In August, many thought that the exposure already hit elevated levels. But in September, the long U.S. big tech exposure is definitely the most crowded trade.

Effectively, it explains the resilience we have seen in the stock market indices. Moreover, it explains why Nasdaq 100 trades close to all-time highs and gained over 40% so far in 2020, despite the pandemic.

The gold market tells a different story. Traders paired their long gold positions in September. After a tremendous rally that started in the summer of 2019, gold made a new all-time high above $2,000 during the 2020 pandemic. However, as impressive gold’s rally was, it was nothing compared to silver (that tripled in less than a quarter) or Tesla (that rose more than fivefold in 2020). Hence, investors booked profits on the yellow metal and diverted gains towards other sectors.

The short USD trade remains popular. The trade dominated financial markets ever since the Fed opened swap lines denominated in USD, designed to address the USD scarcity seen at the start of the pandemic. Literally, all G10 currencies rose against the greenback – a trend that continues in September too.

Corporations used the low interest rates environment to issue more debt at incredibly low yield. Faced with no yield on government bonds, investors jumped on corporate bonds. However, the fixed-income market remains “dead” in the context of low yields, making many investing houses switch their trading departments’ activity towards more volatile markets (e.g., F.X.).

To sum up, investors booked profits on gold and jumped on big tech. Long big tech remains the most crowded trade in September 2020 too.

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