Citi Sees Equity Positioning Tilting Further Towards Large Caps

Investors are continuing to concentrate risk exposure in large-cap equities rather than expanding positioning across the broader market, according to Citi, while small-cap stocks remain subject to substantial short positioning.

Citi analyst David Chew said the latest positioning data showed an increasingly concentrated approach to equity risk.

“The dominant positioning story remains one of increasing concentration rather than broad-based risk taking,” Chew wrote.

In the US, overall positioning remained relatively stable despite stronger performance from major indices. Citi said the S&P 500 accounted for most new risk flows as investors increased exposure selectively.

Nasdaq positioning was little changed, with additional long and short activity largely offsetting each other.

The Russell 2000 continues to have the most bearish positioning of any global index monitored by Citi. Short exposure remains close to extreme levels, while the bank said the current macroeconomic backdrop continues to favour larger companies.

At the same time, Citi said the scale of short positions in small caps means the segment could experience a rally if investors begin closing those positions and buying back shares.

European equities currently have the strongest positioning profile among the regions tracked by Citi. Bullish EuroStoxx positioning has moved back towards recent highs alongside an improving macroeconomic outlook.

The bank noted, however, that around two-thirds of existing long positions are currently at a loss. Citi said this creates the potential for investors to reduce exposure if the economic outlook becomes less favourable.

Positioning across Asia remains comparatively bearish. Citi said the Hang Seng recorded the largest net outflow of any index it monitors as investors added substantial short exposure.

The bank also reported more bearish positioning in Japan’s Nikkei and the China A50.

South Korea’s KOSPI has moved differently from the wider regional trend. According to Citi, short sellers are beginning to record losses while long positions remain profitable. The bank said selective short covering could follow if artificial intelligence-related demand and corporate earnings confirm an improvement in fundamentals.