Contrarian ETF Plays to Go Against the Grain

In anticipation of the summer doldrums, many have increased cash positions to sit out potential volatility ahead. However, increasing negative sentiment may signal contrarian opportunities for some areas of the market and exchange traded funds.

A Bank of America Merrill Lynch fund manager survey revealed that money managers are increasing their cash positions this month and repositioning for a “summer of shocks,” reports Ben Eisen for the Wall Street Journal.

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The average cash balance among fund managers increased to 5.5% in May from 5.4% in April. Meanwhile, U.S. equity exposure is underweight by 18%, compared with 10% in April, with a shift away from American stocks for more than a year.

Asset flows also reveal high demand for quality assets, which is now the most crowded trade this year.

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Whenever average cash balances rise above 4.5%, Bank of America data showed that it generated a contrarian buy signal for equities. BofA analysts suggested that contrarian investors should be long risk assets in the United Kingdom and Japan, along with technology and industrial sectors.