It’s Masters week…one of the most historic and watched sporting events in the world. The game of golf is a complex sport. As I sit and watch these guys try to read every little nuance of the green (break, speed, grain, etc.) before hitting their putts, I’m reminded of the painstaking due diligence process investment professionals go through when selecting a manager.

February ushered in volatility like we’ve not seen in quite some time. And whether the first several days were merely a blip on an otherwise steady climb, or the signaling of a broad regime change, we don’t yet know.

Through December 7th, the global equity markets have advanced by 20% year-to-date, as measured by the MSCI World Index, and they’ve annualized at close to 14% since the end of the Great Financial Crisis. Taking risk in all of its forms has been amply rewarded, and it’s been easy to ignore strategies that can protect on the downside, like Long/Short Equity. But looking at individual fund results for the category, we find that many long/short equity funds have performed quite well this year, with the top performers coming close to, and in some cases exceeding, the performance of long-only equity strategies. Of course, the opposite is true as well, with bottom performers not only failing to keep up, but actually turning in negative returns. We suspect that is a result of trying to time the market and swinging to a net short position.

The table below reflects an interesting analysis from JPMorgan’s head quant Marko Kolanovic. It shows how exposed different investor groups are to equities, relative to their own histories. Unfortunately, it’s not clear how far back this data goes, but there were a few comments that helped to define the time frame. For example, looking at U.S. Households, Mr. Kolanovic says that they are now in the 94th percentile in terms of total equity exposure (meaning that equity exposure has been lower 94% of the time), and that this is above the levels seen in 2007, and only slightly below those of 2000, so we know the data goes back at least to the tech bubble. In any event, the question this raises, is if all types of investors are near their maximum equity allocations, what does that mean for future demand for equities?