The biggest contrarian investment trades right now

Professional investors are crowding into Chinese shares and bonds, but ignoring two large markets.

Investing against the herd is a key tenet of successful investing, as popular markets become overpriced and unloved areas becomes cheap, which can make a rebound more likely. 

One gauge of in-and-out of favour investment calls is to follow Bank of America’s monthly fund manager survey, which tracks the views of professional investors with $850 billion (£700 billion) between them.  

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The latest survey found that in February, investors remained pessimistic but optimism was beginning to appear, as cash levels fell from 5.3% in January to 5.2% this month.  

Cash allocation, with more cash showing that investors are fearful, is now at the level it stood at just before the start of the Russia/Ukraine war a year ago. 

Sentiment about the global economy remained bearish, but is now the least bearish since the start of the conflict last year. Overall, 35% of investors expect a weaker economy in the next 12 months, the survey found.  

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Profit expectations also remained pessimistic, but have improved to an overall 58% expecting profits to deteriorate (versus 65% in January), the least pessimistic since March 2022. 

The survey concludes that even though pessimism is beginning to fade, investors are “nowhere near optimistic enough to say positioning is a sell catalyst" as investors were still underweight shares.  

 The most crowded trades were:  

1. Long China equities - 21% 
2. Long investment-grade bonds - 15% 
3. Long US dollar - 14% 
4. Long US Treasuries - 12% 
5. Long ESG assets - 10% 
6. Long oil - 8% 
7. Long emerging market bonds - 5% 

Within the stock market, investors are bullish on healthcare, banks and energy, while bearish on utilities, consumer stocks and tech shares.  

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Bank of America therefore concludes that the biggest contrarian trades right now are long stocks generally, but particularly US and tech shares, while selling short Chinese shares and bank shares. 

For investors looking to be contrarian, there are a number of Super 60-rated funds that would fit the bill. 

For broad exposure to global shares, the iShares Core MSCI World ETF charges just 0.2% and tracks around 1,500 stocks, with about two-thirds of them American. More focused US exposure could be achieved with Vanguard US Equity Index, another passive fund.  

Active fund options for US, but particularly technology shares, include Scottish Mortgage investment trust and Fundsmith Equity, which has 69% invested in America and around one-fifth of that in tech stocks, including Microsoft, Alphabet and Apple.