Jeff Saut on Under-Invested Managers and the Santa Claus Rally

Strategist Jeff Saut (Raymond James) is one of our must-reads here on TRB.  Saut is one of the few strategists to have nailed the bottom in 2009 and stayed long throughout the rally.

Looking at the Q3 earnings and revenue beat-rate, Saut sees more room for us to go higher.  Here’s what he has to say (from his latest investor dispatch) about how under-invested so many market particpants are and the prospects for a Santa Claus rally…

A few months ago I made my annual sojourn to Europe to speak with institutional accounts. In seeing more than 100 portfolio managers (PMs) I could not find one that had more than a 15% weighting in U.S. equities despite the fact those PMs’ performance benchmark, the MSCI World Index, has a ~43% weighting in U.S. stocks. Yet, it is not just the Europeans that are light U.S. stocks. Here in our country endowment funds are under 10% weighted in U.S. equities. Ladies and gentlemen, there is no way an endowment fund can achieve its annual mandated return of between 6% – 9% with ~2.2%-yielding 10-year Treasury Notes! Accordingly, even a marginal shift in asset allocations to out of bonds and into stocks could cause stocks to trade higher than most expect. Verily, with an improving U.S. economy, Asian monetary conditions gradually easing, and an evolving solution for Europe, the chances of a Santa Claus rally have risen.

Nothing pulls assets off the sideline like the feeling you’re about to miss the boat combined with a “need” to hit certain performance targets.



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