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NAAIM Survey Of Manager Sentiment




Here's an up and coming sentiment tool that I discovered recently. It is released weekly by the National Association of Active Investment Managers (NAAIM), a non-profit association of registered investment advisors formed in 1989. Since the (200 or so) member advisors provide active money management services to their clients, as opposed to buy and hold, they position their portfolios according to their opinions of the market's future. In reality every portfolio is actively managed because there is no way to be passive.

In any case, each week on Wednesday, the advisors communicate their equity exposure by choosing one of the following answers:

  • 200% -- Leveraged Short
  • 100% -- Fully Short
  • 0% -- 100% Cash or Hedged to Market Neutral
  • 100% -- Fully Invested
  • 200% -- Leveraged Long

Their answers are then averaged to produce the NAAIM Trend Survey of Manager Sentiment:

NAAIM Survey of Manager Sentiment

Although we only have two and a half years of sentiment data and a relatively small sample size, this sentiment indicator shows promise. To start its extremes correspond to tops and bottoms in the S&P 500. For example, when active managers reduced their exposure to "neutral" in late August 2007 and July 2008, we saw the S&P 500 find its feet again.

But the latest active managers sentiment is somewhat troubling because even as the market weakness has continued for several months, they have positioned their portfolios more and more aggressively long. Once again we are seeing that we do not have a "wash-out" or complete capitulation. On the contrary, everyone it seems is even more hopeful... as the market falls even lower!

Although the NAAIM data is weekly, it comes out with a delay. The latest result is for January 14th 2009. I'll update the chart when the new data is released or when it tells us some other interesting things about the market.

If you want to get more information or download the raw data to play around with it, you can do so at the NAAIM website.

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3 Responses to “NAAIM Trend Survey Of Manager Sentiment”  

  1. 1 Russ Abbott

    It seems to me from just an eyeball inspection that the managers have been more or less right. Although their emotional state has been quite volatile, their early deep fear levels correctly anticipated the market decline -- and then accompanied it.

    As I read the current value, they are slowly recovering from the extreme fear generated by last Fall's debacle. That's probably right. On the other hand, they are not very optimistic. So their stance of standing back and watching seems appropriate. They are not enthusiastic buyers. But they are not panicky sellers either. Mainly skeptical observers. I can't quarrel with that.

  2. 2 Babak

    Russ, how were the managers "right" when on average they were going very long at tops? and reducing their long exposure at bottoms?

  3. 3 Russ Abbott

    Well, my comment was from a fairly broad perspective.

    * They were broadly long during the early part of the graph -- before the highs in Aug and Oct 2007.

    * They shortened up quite a bit during Aug 07.

    * They went long again briefly when the market recovered going into Oct 07.

    * But they shortened significantly when the market first declined in late 07 - early 08.

    * They briefly came out of hiding in the Spring of 08.

    * But then they immediately went short again in the Summer of 08 and have stayed comparatively short ever since.

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