Stock-pickers double down on communication companies as election volatility looms, BofA says

  • Stock-pickers trimmed overweight bets across nearly all sectors but piled further into communication-services companies in recent months, Bank of America said on Wednesday.
  • The cutting-down of most outsized positions comes as managers prepare for the 2020 US presidential election to drive outsized market volatility, Savita Subramanian, head of US equity and quantitative strategy at the bank, said.
  • Both hedge funds and long-only funds either increased their overweight stakes in the communications services sector or maintained heavy positioning.
  • Some of active funds’ most concentrated communications stakes include News Corp, Discovery, and Fox, according to Bank of America.
  • Visit the Business Insider homepage for more stories.

Active fund managers are balancing positioning in nearly all sectors but one as election-fuelled volatility nears, Savita Subramanian, head of US equity and quantitative strategy at Bank of America, said Wednesday.

After stocks’ summer rally and recent slump, active managers neutralised extended bets as election uncertainty formed “a potentially murkier backdrop” for risk assets, the strategist wrote in a note to clients. Hedge funds hold equal exposure to cyclical and defensive stocks after hitting a record gap between the two categories in April. Long-only funds reversed their months-long move to cyclical stocks.

Yet stock-pickers turned increasingly overweight in their favourite sector. Both hedge funds and long-only funds are the most concentrated in communication services shares, with News Corp, Discovery, and Fox among managers’ favourite picks. Managers either increased their weight in the sector or flat-lined, “indicating still high conviction in 2020’s narrow leadership,” Subramanian said.

Read more:
Legendary options trader Tony Saliba famously put together 70 straight months of profits greater than $US100,000. Here’s an inside look at the strategy that propelled him to millionaire status before age 25.

The share of managers overweight in tech stocks also increased from levels seen in February, though relative exposure versus benchmark indexes slightly declined. Managers grew less exposed to consumer discretionary stocks but a slightly larger proportion of stock-pickers turned overweight in the group.

Once a strong contrarian indicator, fund positioning has taken on a more positive stance in 2020. More funds own tech and less own energy, tracking closely with broader market moves in recent weeks. Long-only managers’ boosted stakes in real estate, consumer discretionary, and utilities stocks served them well, Bank of America said, as did their selling of energy, industrial, and financial equities.

Read more:
A Wall Street firm says investors should buy these 15 cheap, high-earning stocks now to beat the market in 2021 as more expensive companies fall behind

Long-only funds’ positioning in FANG stocks — Facebook,Amazon,Netflix, and Google-parent Alphabet — relative to the S&P 500 slid over the summer after climbing throughout last year.

Still, tech mega-caps’ dominance in recent months hasn’t driven bets against the group. Short interest in FANG names tumbled to record lows of below 1% of shares floated in August, according to the bank.

Now read more markets coverage from Markets Insider and Business Insider:

The co-investing chief of SkyBridge explains how he finds opportunities in places where no one is looking — and shares the 3 hedge fund titans he’s ploughing money into ahead of market-wide ‘muted returns’

US stocks climb as investors await policy guidance from the Fed

The global economy will recover from COVID-19 faster than expected, but new stimulus is still needed, OECD says