The National Association of Active Investment Managers (NAAIM) Exposure Index is a useful resource for investors to assess the sentiment of active investment managers in the stock market. This index reflects how active risk managers have adjusted their clients’ accounts over the past two weeks and serves as an indicator for potential extremes in investor sentiment.

When the readings are notably high (above 90), it indicates that investment managers are heavily investing in the market, suggesting they may be overly optimistic, which could signal an impending market peak. Conversely, very low readings (below 40) suggest that managers are being cautious with their investments, indicating they might be excessively pessimistic, which could point to a potential market bottom.

Traders frequently monitor the index to observe changes in stock interest over time, while money managers analyze the data to understand the adjustments made by other active managers.

The NAAIM Exposure Index is a weekly survey conducted by the National Association of Active Investment Managers, an organization that represents investment advisors employing active management strategies for their clients' portfolios. Active money managers from NAAIM member firms are asked to provide a figure that reflects their total equity exposure at the market's close on a specific day each week.

The survey gathers responses regarding their current equity exposure, which can range from 200% long (leveraged) to 200% short (betting against the market):

• 200% Leveraged Short
• 100% Fully Short
• 0% (100% Cash or Hedged to Market Neutral)
• 100% Fully Invested
• 200% Leveraged Long

Generally, higher levels of equity participation indicate that investors are optimistic about the market overall. When equity participation begins to decline, it suggests that investment managers are reducing risk in their portfolios, possibly in anticipation of a market downturn.

To interpret the NAAIM Exposure Index, consider the following:

• Average exposure: The index reflects the average equity exposure of participating active investment managers. A higher number signifies greater bullishness, while a lower number indicates increased bearishness or caution.
• Median exposure: The median exposure offers additional insight by showing the middle value in the range of responses, which can help identify potential outliers.
• Range of responses: The range of responses, from the most bullish to the most bearish, provides insight into the diversity of opinions and strategies among active investment managers.

It is essential to understand that the NAAIM Exposure Index is not a predictor and does not provide much assistance in forecasting stock market movements. The primary objective of most active managers is to balance risk and reward while staying attuned to market developments. As with other sentiment indicators, traders should focus on trends over time rather than relying on a single reading.

The NAAIM Exposure Index holds significance for several reasons:

• Market sentiment: The index offers insights into the sentiment of active investment managers, aiding investors in identifying potential market trends and reversals.
• Active management perspective: The NAAIM Exposure Index provides a unique viewpoint on market sentiment, focusing on the perspectives of investment professionals who actively manage their clients’ portfolios, as opposed to passive investors.
• Market analysis: By tracking the index, investors can better understand the factors influencing market sentiment and make more informed decisions regarding their investment strategies.

The NAAIM Exposure Index is conducted and published by the National Association of Active Investment Managers. The survey data is collected from the responses of NAAIM member firms, which voluntarily participate in the survey.

The results of the NAAIM Exposure Index are publicly available on the NAAIM website, typically updated every Wednesday. The website provides a summary of the latest survey results, including the average and median equity exposure, as well as the range of responses from participating money managers.