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Mutual funds piled into stocks in the fourth quarter in a catch-up move, according to Barclays.
“US equity mutual funds scrambled to extend US equity exposure in December after getting caught lightly positioned into the year-end rally, having materially de-risked in 3Q23,” strategist Venu Krishna wrote in a note. “These real money investors continue to quickly ratchet up their positions, pushing long-only institutional equity exposure to a post-COVID record.”
“Long equity futures positions are hovering near 3-year highs,” Krishna added.
“4Q23 saw a strong technical bid for stocks that forced both systematic and discretionary investors to unwind short/underweight equity positions,” he said. “The catalyst was, of course, the Fed; while higher-for-longer rates was the predominant narrative earlier in 2023, dovish surprise at the November FOMC (combined with a healthy dose of Treasury supply relief and steady progress on disinflation) triggered a broad-based risk-on to close out the year.”
“Much of the momentum behind this rotation has carried into 2024, and while the near-term rates outlook has once again turned less rosy in recent weeks (after inflation jumped in January, pushing our own call for the first Fed cut out to June), it appears the equities train has already left the station,” Krishna added. “Fundamental macro data is holding up, US consumption remains strong and earnings exceptionalism within US mega-cap Tech has raised the floor for S&P 500 (NYSEARCA:SPY) (IVV) (VOO) earnings in 2024, bringing the world to the table for US stocks.”
Among the largest equity mutual funds are: Vanguard Total Stock Market Index Fund Inst (VSMPX), Fidelity 500 Index Fund (FXAIX), Vanguard 500 Index Fund Inst (VFIAX), Vanguard Total Stock Market Index Fund Admiral (VTSAX), Vanguard Total International Stock Index Fund (VGTSX), Vanguard Institutional Index Fund (VIIIX) and Vanguard 500 Index Fund Inst (VFFSX).
