In the second quarter, only long-term funds (LOs) made significant strides by increasing their exposure to Communication Services, increasing their relative weight in this sector by five percentage points to more than 30% overweight, according to a note from Bank of America on Friday. .
In its executive management holding the update note, BofA says the volatility underscores growing confidence in a sector that was already considered “very tight” as LOs sought to take advantage of its recovery.
To fund this change, LOs are said to have significantly reduced their positions in cyclical sectors, particularly in Utilities and Energy, with exposure falling by 4 and 3 percent, respectively.
The decline in Discretionary shares, down four percent, is seen as continuing to highlight ongoing concerns about consumer confidence, especially as economic indicators suggest a possible slowdown.
Bank of America's analysis also reveals that despite this reallocation of strategies, active managers have not shown a strong appetite to take on tail risk.
The company's US Regime Indicator and Global Wave both showed a deteriorating economic outlook in July, suggesting a possible transition from the current Recovery phase back into a Depression.
This warning is reflected in the bias in favor of Low Beta stocks, as well as rising cash levels, reflecting the growing risk aversion among active managers.
It is interesting that “the most dense stocks were saved during the summer sale,” said Bank of America.
“A strategy of going long on at least 25 overstocked stocks and shorting the 25 most overstocked stocks (based on both weighted LOs and ownership breadth) would have generated >8ppt of alpha during the S&P 500 peak,” they said. added.
Overall, the widened market range, seen since June, bodes well for active managers, especially those who have been dealing with the dominance of large stocks.
“A healthy range is a good thing for PMs, who last year were faced with the choice of increasing their risk or significantly reducing the latest leadership,” BofA concluded. “We expect the rotation to continue, choosing an equal weight index.”
