The National Association of Active Investment Managers (NAAIM) Exposure Index is a valuable tool that helps investors gauge the sentiment of active investment managers in the stock market.
The NAAIM Exposure Index shows how active risk managers have changed their clients’ accounts over the past two weeks.
This index acts as a signal for potential extremes in investor sentiment.
When the readings are very high (above 90), it means investment managers are putting a lot of money into the market. This suggests they might be too optimistic, which could signal a market peak is approaching.
On the other hand, very low readings (below 40) indicate managers are holding back on investments, suggesting they might be overly pessimistic, which could hint at a possible market bottom.
Traders often look at the index to see how interest in stocks has changed over time. Money managers also look at the data to find out what changes other active money managers are actually making.
What is the NAAIM Exposure Index?
The NAAIM Exposure Index is a weekly survey conducted by the National Association of Active Investment Managers, an organization representing investment advisors who utilize active management strategies to manage their clients’ portfolios.
Active money managers at NAAIM member firms are asked to give a number that shows their total equity exposure at the close of the market on a certain day of the week.
The survey collects responses regarding their current equity exposure, ranging from 200% long (leveraged) to 200% short (betting against the market):
- 200% Leveraged Short
- 100% Fully Short
- 0% (100% Cash or Hedged to Market Neutral)
- 100% Fully Invested
- 200% Leveraged Long
How do I use the NAAIM Exposure Index?
In general, higher levels of equity participation show that people are optimistic about the market as a whole.
When equity participation starts to go down, it means that investment managers are starting to lower the risk in their portfolios. This could be because they expect the market to go down.
To understand the NAAIM Exposure Index, consider the following:
- Average exposure: The index represents the average equity exposure of the participating active investment managers. A higher number indicates greater bullishness, while a lower number suggests increased bearishness or caution.
- Median exposure: The median exposure provides an additional perspective by showing the middle value in the range of responses, which can be useful in identifying potential outliers.
- Range of responses: The range of responses, from the most bullish to the most bearish, offers insight into the diversity of opinions and strategies among active investment managers.
It’s important to know that the NAAIM Exposure Index is not a predictor and doesn’t help much when trying to figure out what will happen in the stock market.
Most active managers’ main goal is to balance the risk and reward of the stock market and keep up with what’s going on in the market at all times.
As with the other sentiment indicators, traders should look at trends over time rather than a single reading.
Why is the NAAIM Exposure Index important?
The NAAIM Exposure Index is important for several reasons:
- Market sentiment: The index provides insights into the sentiment of active investment managers, helping investors identify potential market trends and reversals.
- Active management perspective: The NAAIM Exposure Index offers a unique perspective on market sentiment, as it focuses on the views of investment professionals who actively manage their clients’ portfolios, as opposed to passive investors.
- Market analysis: By monitoring the index, investors can gain a better understanding of the factors influencing market sentiment and make more informed decisions about their investment strategies.
Who publishes the NAAIM Exposure Index?
The NAAIM Exposure Index is conducted and published by the National Association of Active Investment Managers.
The survey data is collected from the responses of NAAIM member firms, who voluntarily participate in the survey.
Where can I find the NAAIM Exposure Index?
The NAAIM Exposure Index results are available to the public through the NAAIM website, typically updated every Wednesday.
The website provides a summary of the latest survey results, including the average and median equity exposure, as well as the range of responses from the participating money managers.