JPM JPM PI Weekly Wrap

Positioning Intelligence | Weekly Wrap HFs buy Banks and sell Semis, while EU Positioning Low vs. US

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Summary: At a high level, there weren’t major changes this past week with HF performance still challenging, flows lackluster, and positioning neutral in US vs. fairly low in Europe. However, more focus was arguably below the surface with EU Banks continuing to sell off as concerns around France remain elevated, oil still volatile and Energy stocks outperforming, Semis taking a hit on Thursday, small caps still underperforming, and Biotech selling off again. While there are many things to potentially watch next week with earnings and CPI coming up, the keys from our side include whether Banks can rebound (as they typically do in 4Q), if Semis / AI can hold up after positioning generally increased last month, and if Europe can stabilize.

1. HF performance — October still choppy: HF performance remains challenging in Oct (-0.8% MTD) as long books are still dragging and shorts aren’t offsetting. Quants have cooled to ~flat MTD (vs. strong gains last month). Equity L/S is the main laggard (-1.2% globally) and EU managers are feeling the most pain (-1.3% MTD), with EU Financials (Banks) a notable detractor via negative crowding returns. 2. Flows — flat HF activity; retail still soft while ETF seasonality improves: Aggregate HF flows were lackluster with turnover ~0.5z below average and global gross/net flows both roughly flat. Net flows also look increasingly correlated to markets in the US (buying into up days late last week/Monday, then turning more negative Thursday), suggesting HFs could amplify market direction. Retail flows/sentiment remain low, while ETF flows have started to rebound and seasonality argues for positive ETF flows and potential Retail buying. 3. EU vs. US positioning — US steady, EU sliding and difference is getting stretched: US positioning is relatively unchanged MTD (US TPM ~46th %-tile), but bearishness in Europe continues to build (EU saw -1.7z net selling this week; aggregate positioning down to ~13th %- tile). The EU vs. US positioning gap is starting to look meaningfully stretched. 4. Banks — US Banks bought ahead of earnings (Large Caps > Regionals), while EU also bought despite high positioning: HFs bought US Banks for a second straight week (just over +2z), leaning into a potential 4Q rebound setup. Flows still favor Large Cap Banks (+1.5z / 5d; positioning near highs) while Regionals were sold (-0.9z; low 12m positioning). EU Banks underperformed, and while HFs still modestly bought (<+1z), positioning remains elevated (+3z vs LT), making EU Banks a key risk if Europe de-risks further. 5. Other sector themes — Semis de-risked ex-AxJ, Utilities still unloved by HFs but ETFs bid; Biotech stabilizing: Semis stayed volatile and were the most net sold industry by HFs in N. Am. (-1.5z) and EMEA (-3z) and also sold in Japan, with AxJ the lone buyer (+1z). Despite the selling, Semis remain a top-2 net exposure industry in every region (more stretched on LT basis than vs the last 12m). Defensives outperformed in the US, but HFs showed limited appetite to add this past week. Utilities remain near historically low HF positioning even as ETF flows into the sector have turned positive. Biotech remains weak, but saw a pause in de-grossing.

JP Morgan Positioning Intelligence

John Schlegel | | Jigar Vakharia | | Sunny Potharaju | |

This material (“Material”) is not a product of J.P. Morgan’s Research Departments and should not be viewed as a research report. The Material is provided by J.P. Morgan’s Prime Finance business for informational purposes only. This note highlights some notable trends observed in positioning within the J.P. Morgan Prime Finance portfolio. This Material includes data and viewpoints from various departments and businesses within JPMorgan Chase & Co., as well as from third parties unaffiliated with JPMorgan Chase & Co. and its subsidiaries. The generalized hedge fund and institutional investor information presented in this Material, including trends referred to herein, are not intended to be…