Investor Positioning and Flows Oct 13

Global Asset Allocation Date 9 October 2026 Investor Positioning Strategy Update and Flows

Ready For The Next V-Turn: Moving Tech from Overweight To Neutral Parag Thatte Strategist n The Tech rotation has run far and the risk-reward no longer looks favorable in the near term. Last week we flagged that the rotation into Tech Binky Chadha that began in late July (Rotating On Cue Again, Jul 31 2026), the 5th in the Chief Strategist last 2 years, was approaching the top of its long-run trend channel, a level from which it has turned several times previously. Tactically, the risk-reward Karthik Prabhu no longer looks favorable with about 4pp of outperformance to reach the Strategist top but potentially 16pp of relative downside if the pattern of rotations near the edges of the channel holds. We note that prior rotations have been Dag Workayehu inverted V-turns. Strategist n Positioning is still asymmetric and overweight in Tech while other sectors have been weighed down by a slew of negative catalysts. Positioning in Tech has begun to slip but is still overweight. For other sectors, battling a slew of negative catalysts has indeed taken a toll even as the index has remained resilient. Discretionary investor positioning broadly is modestly underweight, and most sectors are close to neutral or underweight, as are small caps. n Extremely strong Tech earnings growth in Q3 is unlikely to be enough while the bar elsewhere is significantly lower. While we expect extremely strong Tech earnings growth again in Q3 of around 55% (Q3 2026 Earnings Preview: Not Looking For A Deceleration, Oct 7 2026), this will likely not be enough in the near-term to drive Tech higher, as concerns are now centered around future profitability and unlikely to be resolved soon. The bar for other sectors is low in our reading with a prevalent belief that there is hardly any growth there to begin with. In contrast, we forecast ex-Tech growth at a strong 21% yoy (just a shade lower than the 23% in Q2) and expect the median company in the S&P 500 to again post very robust growth in the mid-teens. n A rotation into other sectors should alleviate concerns around market breadth. Given its concentration, periods of Tech outperformance typically spark concerns around market breadth, and the last two months have been no different. In our view, rotation into other sectors and small caps should alleviate those concerns. n But will it be accompanied by a broader selloff? Recent history suggests yes but we note this is colored by rotations which melded into large exogenous shocks that dragged all stocks down, such as Liberation Day and the start of the Iran war.

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Investor Positioning and Flows

Across geographies, a rotation away from Tech favors cyclical regions such as Europe versus US and Asia. Tech exposure is also a key determinant of returns across regions. A rotation away from Tech favors Europe (Tech exposure of 9%) versus the US (40%) or Asia (30%). Longer-run Tech outperformance trend remains intact in our view. Tech has outperformed the rest of the S&P 500 by 14pp annually over the last decade, underpinned by vastly stronger earnings growth. We do not expect that dynamic to change.

Positioning and flows details on page 8

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