FAANG and BAT stocks
For the tenth consecutive month, the so-called FAANG and BAT stocks—the US stocks Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) and China’s Baidu (BIDU), Alibaba (BABA), and Tencent (TCEHY)—remained the most crowded trades. However, investors’ sentiment seems to be shifting, as only 29% of the respondents determined them to be the most crowded trade as compared to 32% last month and 36% a month before that.
While investors were already concerned about the stretched valuations for these stocks, the October sell-off has made investors especially worried. During the latest market sell-off in October, the tech-heavy NASDAQ Composite (QQQ) fell by 8.6%. The headwinds for these stocks are increasing with rising costs and increased regulatory scrutiny. The trade war between the US and China is hitting tech stocks especially hard. It’s difficult to say whether these stocks’ high valuations are due to a bubble or are actually supported by future earnings growth, but investors are definitely wary of the bull run.
Other crowded trades
The other top two most crowded trades were the short position in US Treasuries (TLT), which was cited by 25% of the fund managers, higher than 19% last month. The heavy sell-off in US Treasuries triggered by strong economic data and concerns of rising interest rates most likely propelled short Treasuries to the second most crowded trade.
The long position on the US dollar (UUP) was the third most crowded trade with 22% of respondents citing it. The US dollar has been on a fairly upward trajectory in 2018 thus far. YTD, it is up ~4.5% as compared to other major global currencies. The Fed’s interest rate hikes and outlook, trade war concerns, and a better US market (SPY) (QQQ) performance have been the key factors behind the US dollar’s strength.