Deutsche Bank strategists said aggregate equity positioning rose to a modest overweight last week and that there remains room for allocations to increase further.
In a note prepared by a team that included Parag Thatte, the strategists highlighted that several systematic strategies boosted their exposure to equities. Those named included volatility control funds, commodity trading advisors and risk-parity funds, all of which increased equity allocations over the week.
The strategists cautioned that the same trend could continue but at a slower clip, observing that the recent decline in volatility will reduce the upward pressure on allocations as that lower volatility is incorporated into look-back windows used by these strategies.
On the discretionary side, the strategists said positioning held well below the levels implied by first-quarter earnings growth, indicating that active, judgment-based investors have not yet matched the exposure suggested by corporate results.
Across market sectors, positioning has risen in many areas but remains predominantly underweight overall. The strategists specifically pointed to underweight positions in megacap growth and technology stocks.
Flow data for the week showed an acceleration in equity fund inflows, which climbed to $25.9 billion. The increase was driven in part by $18 billion into U.S. equity funds and $15.7 billion into broad-based global equity funds.
Fixed income saw inflows as well, with bond funds taking in $12.4 billion, the largest weekly total in seven weeks. Emerging market bonds recorded the biggest bond inflow of the year at $6.6 billion.
Meanwhile, money market funds experienced outflows of $19.8 billion, marking a second consecutive week of withdrawals from those short-term liquidity vehicles.
The strategists' observations combine positioning metrics across systematic and discretionary investors with recent fund flow figures to paint a picture of growing but still cautious equity exposure, alongside notable activity in both bond markets and cash allocations.