NAAIM Exposure Index – What is and how to use it

The NAAIM Exposure Index is an interesting indicator that shows the investor’s sentiment. NAAIM is an association of companies specializing in the management of active funds in the United States.

Each week these managed accounts must report their exposure on the stock market. The answers provided by these operators can be of 5 types:

  • 1. 200% Leveraged Short.
  • 2. 100% Fully Short.
  • 3. 0% (100% Cash or Hedged to Market Neutral).
  • 4. 100% Fully Invested.
  • 5. 200% Leveraged Long.
Naaim Exposure Index Chart example

What is the Naaim Exposure Index

As with most sentiment indicators, the NAAIM Exposure Index is a contrarian indicator. A high net long position is bearish for the stock market. This is because this category of operators has already gone long during the uptrend.

Short net exposure may instead be bullish for equities. This is because it may force this category of traders to chase a bullish reversal by the market.

Looking at performing the NAAIM Exposure Index in the medium term, when its value is greater than 80%, it registers an excess of optimism. This situation often signals the achievement of a maximum of the short-term stock market.

For Example, when the NAAIM Exposure Index value is less than 20%, it records an excess of pessimism. This situation often signals the achievement of a short-term minimum on the stock market.

To analyze the data collected in the survey, they construct the level of confidence present in the responses provided by the managers. Above all, confidence is the standard deviation of the survey responses.

The high volatility of responses shows that there is a lot of dispersion in responses among managers. Finally, low volatility shows that managers’ responses are converging instead.

Sentiment indicators VS Technical indicators

You are used to using many technical indicators within your broker’s platform. Most technical analysis indicators are based on prices.

These indicators analyze the price and based on some formulas, they give indications. These indications can provide the trend direction or the long and short signals. Generally, the trader doesn’t go looking for indicators outside his trading platform and this can be a limit.

Using many indicators based on price could be an error because the analysis is done on the same data. The technical analysis indicators will hardly give conflicting results; at most, we can use them in a complementary way.

However, some indicators use external data. For example, the Naaim Exposure index analyzes the actual investor positions. These indicators are handy as they provide data that is unrelated to prices. You will have a much more realistic market because you will see what investors are doing.

Naaim Exposure Index and market predictions

The NAIIM indicator must be used in a contrarian way. When investors are 100% long, it means that we are probably near the reverse of one stable uptrend.

If all investors are long, there will be very few sellers and the market will be in an overbought condition.

The wrong way to use this indicator is to follow what investors are doing. For example, if you notice that all investors are long, you will not have to go long but wait for an excess zone and open a contrary position.

So this indicator makes a market prediction but following a contrary interpretation of the indicator itself. Being an indicator that uses aggregated data, the actual view of managers may differ from the existing positions.

They may open short positions in a week to manage the risk of news. Here, the short positions will only be temporary and the long-term view will remain bullish. The investment fund may have opened a series of short positions which will be closed by the end of the week.

The Naaim Exposure Index will show a shift of investors to short positions, but this does not mean a change in underlying sentiment. For this reason, never use this index as an interpretation of professional investor sentiment. As never interpret the Cot Report in the same way.

Why isn’t the Naaim Exposure Index predictive?

The Naaim Exposure Index is not predictive because many active managers aim to limit risks and losses. These subjects will rarely go against the market, but will follow the price trend.

So in the bull market, you will rarely see active managers short selling against the trend. Many or almost all will align with the dominant direction. Let’s analyze the last two years of the Naaim compared to the S&P500 index.

naaim chart versus s&p500 chart
This image is from the NAAIM site

As you can see, when there is a strong uptrend market, active managers could be 100% invested, while when the market goes down, they go out.

Graphically it can be seen that when the market then bounces, the Naaim indicator is very synchronized. When the S&P500 index is rising, the Naaim quickly reaches the value of 100 and then stays in that area.

It means that you will rarely see a Naaim exposure index above the value of 100. There is also another problem. Active managers communicate their exposure in the market at a time, but it is an aggregate position and can include more strategy.

Let’s take an example.

An active manager has an exposure of 50 in long positions based on a long-term strategy; at the same time, he will have an exposure of 100 in short positions based on a short-term strategy. For example, the investment fund may have opened short positions based on short-term news that is about to come out.

Using the Naaim Exposure Index, you note that the active manager is short of 50, but in reality, this is not the actual view of the investors, which in the long run are long.

Also, many investment funds carry out frequent daily transactions. By communicating their positions once a week, the photo that is taken may have already changed at the time of publication of the data.

NAAIM Exposure Index and RSI Indicator

Many mature markets such as the US Stocks Market respond very well to mean reversal logic. One of the best technical analysis indicators for mean-reverting strategies is the Relative Strength Index Indicator.

Mature markets are characterized by huge capitalization and by many institutional investors. When there are many institutional investors, prices tend to stabilize and strong trends disappear. If there is an excessive upward or downward movement, the market will return to an equilibrium point.

As we said, an excellent indicator to exploit these dynamics is the Relative Strength Index Indicator.

When the relative period of 14 periods exceeds 70, we are in an overbought market. When the RSI is below the value of 20, we are in an oversold situation and therefore, we will have to look only for long opportunities.

As we have already highlighted, relying only on a technical analysis indicator can be misleading. RSI strategies are likely to be profitable in many mature markets. Associating an overbought or oversold signal with an indicator such as the Naaim Exposure Index could be the winning move.

We know that when the Naaim indicator falls below 20%, the market will rebound. So the convergence of a technical indicator such as RSI with a sentiment indicator such as Naaim could give greater guarantees of profit.

Connors RSI Strategy cover
Connors RSI Strategy — Read More Here


From this point of view, the NAIIM is very similar to the Cot Report; the Cot Report also highlights the short or long positions of a series of subjects who invest in the market. The Cot report is a publication made by the CFTC and concerns the American futures market.

Under US law, investors must report their positions to the CFTC, which then makes them public once a week.

cot report example

The intent of publishing the Cot Report is to make the market and its transactions more transparent. These publications began in 1924 when the U.S. Department of Agriculture started to publishing an annual report.

All speculative transactions in the agricultural commodities futures market were listed in this report. Since the 1990s, the report has been published every 15 days and then becomes weekly after the 2000s.

Then the Cot Report, and the Naaim, describes the existing positions in the market. The Cot Report is complete and reliable than the Naaim exposure index.

Cot Report divides investors by categories and groups the positions of many investors, while the Naaim concerns only active managers registered with the national association of active investment managers.

The Cot Report tutorial cover
The Cot Report tutorial — Read More Here

What is the NAAIM – National Association of Active Investment Managers

The National Association of Active Investment Managers was born in 1989 as a non-profit association. At the beginning of its activity, the Naaim Exposure Index did not yet exist.

In the beginning, it was made up of a small group of investors, but it exploded and today, it is made up of many investment advisors. It is made up of a small company and very large hedge funds.

This association creates a meeting place for professional investors.

Through the association’s activities, active managers will exchange information and stay up to date through publications or conferences. Besides, the members of the association will have to follow a series of best practices that wilguarantee investors.

For an active manager, joining this association is like having a quality guarantee. Active managers registered with the association will network among themselves. They will also get discounts to purchase services and therefore reduce their expenses.

Active managers will also be able to use investment or marketing techniques developed and perfected over the years by the National Association of Active Investment Managers.

There are many activities organized by the national association of active investment managers. For example, the annual Uncommon Knowledge and Outlook Conferences, live webcasts, and many on-demand webinars.

Thanks to networking, many investors can discover the investment ideas of other partners who will guarantee profits to their customers.

The annual conferences organized by the National Association of Active Investment Managers are widely followed. Many traders then carefully follow the Naaim Exposure Index indicator.

NAAIM Active Investing Strategy Competition

The National Association of Active Investment Managers organizes this competition every year. The participants in the competition are divided into categories:

  • Active Bond / Fixed Income Strategies
  • Active Stock Selection Strategies
  • Strategic Allocation Strategies
  • Tactical Stock Market Strategies
  • Alternatives Strategies

Each manager will register for the competition that best suits his strategy and will compete with managers who adopt similar strategies in the same category.

The first phase of the competition takes place through the presentation of the strategy via WebCam. After the presentation of the strategy, a commission will choose the finalists.

The association decides the finalists of the NAAIM Active Investing Strategy Competition based on the quality of the strategies, the track record and the statistics. The finalists will present their strategy live during the NAAIM’s Uncommon Knowledge Conference.

This competition is open to all trading and investing professionals. To take part, you must provide a verifiable track record. Those who participate must fill in the request on the Naaim association website and must record a video with the description of the strategy.

After this video, they may request an additional video to answer questions from the judges. Obviously, all participants will have to show their track record with real money to check the statistics of their strategy.

It will be important for the commission to judge the drawdown, the annualized return, the annualized volatility, etc.

For example, in 2018, Dave Moenning, Founder and CIO of Heritage Capital Research, won the competition. It is a great advertising source that can reach new investors.

Dave Moenning won the Naaim Shark Tank competition following the teachings of Marty Zweig. Marty Zweig is an investor who has always advised not to open positions against the major trend and to always stay in harmony with the market. 

NAAIM Founders Award

The National Association of Active Investment Managers annually organizes the NAAIM Founders Award. It is a competition concerning research. Investors all over the world can create a paper describing their investment techniques.

The papers should cover an innovative topic in ​​active investing. The NAAIM Founders Award winner will get a cash prize of $ 5,000 and will attend the NAAIM Uncommon Knowledge conference.

Find a White Paper or other material

It is possible to view the papers of the various active managers on the Naaim association website. By entering the keywords and sending a request, you can download three competition papers every year.

From this link, you can view the names of the authors of the various papers with their respective titles, once you find the one you are interested in, just enter the title in the search bar. They will email the paper in 3-5 days; only Naaim members can access all the papers and download them for free.

But it doesn’t end there. On the Naaim association website, you can also find other free material. At this link, there are a series of interesting webinars and conferences that are worth downloading and listening to.

Considering that it is free material, it could have a principal value. Another very interesting and also free resource is The Active Manager Newsletter. This newsletter is published at quarterly intervals and can be viewed free by everyone.

I assure you it is not so easy to find professional investment resources for free on the web. Also, the association itself acts as quality control on the contents. We advise you to download and read all this material until it is free.

The NAAIM Dynamic Allocation Model

Besides the Naaim Exposure Index, on the Naaim website, you can find another interesting tool: the Naaim Dynamic allocation model. This model shows how the capital invested in the various strategies is divided.

naaim dynamic asset allocation model
Image from NAAIM WebSite — Link

For example, looking at the latest model, we see that the equity allocation is equal to 60% while the fixed income allocation is equal to 40%. Then we have a list of the various strategies and the related equity allocation:

  • – Price Trend
  • – Intermediate-Term Momentum
  • – Overbought and Oversold condition
  • – Intermediate-term sentiment
  • – Environmental Factors

It is repeatedly stated that the NAAIM Dynamic Allocation Model ninth represents individual investment advice.

How to create the Naaim Exposure Index in Excel

At this address, you can download the Naaim Exposure Index data. You will download the data in Excel format. If you want to create a basic chart in Excel using this data, you can follow these steps:

To make everything easier, we recommend removing these columns and leaving only the date, the Naaim number and the S&P.

excel naail exposure index

Once you have deleted all the columns, you can select a new chart to insert in your spreadsheet.

Select the date and the two values ​​and create a chart.

naiim exposure index and sp in excel graph

This system can be handy for making backtests. You could create an indicator with the Naaim Exposure Index data and set a strategy that buys when the Naaim has a particular value and that sells when the Naaim has a certain value.

As we said above, it would be useful to combine this indicator with a technical indicator based on price. A good indicator to be added to the Naaim is the Relative Strength Index.

Naaim Exposure Index and the real market

Let’s see how the Naaim exposure index has behaved in the last period, during one of the most severe financial crises in history.

The world stock market crashed after the middle of February 2020. The Naaim Exposure Index also crashed in the same period. As you can see at this stage, the indicator and the American index have moved in the same way.

This confirms what we have said about the predictive function of the Naaim Exposure Index. In extreme situations such as those of a crash market, the RSI indicator will also collapse in an oversold area.

Also, in this phase, active managers may have opened hedging positions for their portfolio, but only for the short term. For example, they may have left their positions in their equity portfolios unchanged and added instruments to hedge long positions.

Again the Naaim Exposure Index will show an excess short of investors, but this does not mean a Long-term bearish view. As the market recovered, investor positions also turned back into bullish.


The Naaim exposure index can be useful to get an idea of ​​what active managers are doing and how they are positioned.

Just as the Cot Report cannot be used alone to generate trading marks, at the most, we can use it as a filter or in combination with a technical analysis indicator.

Always remember that this indicator is not predictive and that you will have to interpret it in the opposite way.

You have to analyze the standard deviation of the survey responses. The high volatility of responses shows that there is a lot of dispersion in responses among managers and vice-versa.