Growth Funds Sold Into Top

September 2007

Deeply Cautious.  Growth Funds grew deeply skeptical in the months leading up to the market highs of mid-August 2007.   This position is very different from the experience of 2006.

Back in summer of 2006, funds were somewhat expansive as the market approached its correction, carrying exposure in the 1.20x market to 1.25x market range...and rapidly buying into the summer dip and buying into the ensuing rally.  By end of year (2006), average Growth Fund exposure was running almost to 1.50x market.

Growth Funds Sold into 2007 Run-Up

In 2007, however, average exposures started out way up near that 1.50x market sensitivity, and retreated consistently in the run-up to the August peak...and also as the market entered the credit crunch turmoil.  In early September we have average Growth Funds at only 0.88x market.  These are some of the lowest readings since the bottom of the bear market in 2002. 

What Does It Mean?  Is this a "contrarian" buy?  Not necessarily. There is immense difference between selling into a market slide (2002) vs selling into an uptrend (2007).  Selling into a sell-off is an evidence of irrational "capitulation," but selling into a run-up is evidence of plausible caution.  And right now the caution is deep.

Most likely what this means--here in September 2007--is that next emerging trend will have great thrust.  If markets head lower, the already prevailing apprehension could rapidly cascade into a rout.  Or if uptrend resumes, all this low exposure could convert into hand-over-fist buying to get back into the game.  

[Also note that our Prime Timers are way into historically low exposures, and they all have positive timing histories.  See link on nav bar at left.]


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(Individual fund exposure examples at Prime Timers link on navigation bar at left.)

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