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This year's market rally reveals investor divide: Bernstein analysts

Hong Kong

THIS year's market rally has revealed a schism among investors, according to quantitative strategists at Sanford C Bernstein & Co.

In equities, indicators such as fund flows point to neutral investor confidence even as global markets set fresh records. However, investors have deserted asset classes that protect portfolios in turbulent markets, such as gold, US Treasuries or volatility, a trade which looks "bullish to a degree that is becoming alarming", the brokerage said in a research note.

"The shorting of tail hedges does likely put more of a limit on the 'melt up' scenario", even if it isn't sufficient to justify becoming bearish just yet, analysts including head of global quantitative and European equity strategy Inigo Fraser-Jenkins wrote in a research note dated April 29.

Stocks and bonds have advanced this year as investors speculate on a resolution to the US-China trade conflict and global central banks tone down their previously hawkish stances.

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Gauges of volatility have also fallen to the low end of their historical ranges as investors bet the market calm will continue. Speculative investors including hedge funds have built up the biggest short position on record in the Cboe Volatility Index, known as the VIX, according to data from the Commodity Futures Trading Commission.

To be sure, some investors believe the picture is more nuanced, and that bets that volatility could bounce back are also sizeable.

Given high investor demand for low-volatility stocks in the US, Bernstein's quants recommend scouring global markets and within sectors for stocks which have not been bid up to the same extent. BLOOMBERG

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