By Rob Isbitts via Iris.xyz

Momentum is a self-fulfilling prophesy

Today’s big question for investors is, “what’s in a NAAIM?” NAAIM is the National Association of Active Investment Managers, and for decades they have published a weekly survey of their members. That survey seeks to know not what those investors are thinking or saying, but what they are doing. The survey is a single question: what is your current “exposure” to the U.S. stock market? By exposure, we mean how much of their typical portfolio is invested in stocks.

The chart above shows the NAAIM index over the past 12 months, with the S&P 500 ETF (SPY) tracked alongside.  Those with a keen eye for this stuff will notice that the NAAIM index actually peeked its head above 100% last June.  In fact, unlike in my own investment works, some of these active managers will use significant leverage (borrowing against the assets they have invested, as people often do when buying a house) in their portfolios, which allows them to take on up to $2 of market exposure for every $1 of assets they have.  On the flip side, they can go up to 200% short, whereby their investment portfolio would likely lose $2 for every dollar the stock market went up, and vice-versa.

Here is that same index and the S&P 500 ETF for the full year 2017, the period just before the one shown in the chart above.

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