Macro/CTA funds had their largest drawdown on Monday since August 2007 as risk assets collapsed and the euro rallied. With markets in flux after the Greece-induced shock, our composite equity positioning measure is at the highest level since early
December 2014. On the other hand, bond positioning is a bit cleaner. Exposure to euro area equities is still underweight, helping to support the rally today on Greek headlines. However, trust has been eroded and the July 5 referendum is likely to proceed. Although recent developments may favor a ‘yes’ vote and could lead to a relief rally in global equities, the potential for ongoing political uncertainty in Greece combined with extended positioning could see a more moderate move than some are expecting. A “no” vote could lead to a large selloff (see Deadline missed, referendum on for a discussion of the key issues). Extended equity positioning is an overhang near term, but fundamentals and fund flows are the key to sustained performance; both should be supportive of equities in Q3 (see Good time to buy cyclically sensitive assets).
Equity fund positioning in aggregate is now 1.1std above average. When composite beta was at least 1.0 stdev above average, global equities declined 2% over the next month on average