Investing.com -- Active fund managers have made notable shifts in their portfolios, reflecting mixed sentiment and sector rotations, according to Bank of America (NYSE:BAC) (BofA) analysts.
BofA notes that investor sentiment remains divided. “Fund cash levels fell to lows last Sept. but have ticked up since,” while sell-side allocators reduced equity exposure for the first time in nearly a year.
Meanwhile, a disconnect between institutional and retail investors is said to have emerged, with “bullish advisors (GWIM Survey) at odds with a plunge in retail sentiment” as the AAII Bull-Bear spread has been net bearish for four consecutive weeks.
Momentum stocks, which performed well in 2024, have shown signs of weakness, according to the bank.
“The average Price Momentum factor dropped ~4% in February, an outsized move, lagging the equal-weighted S&P 500 by 3ppt,” BofA stated.
Given that momentum remains the most overweight factor in active portfolios, the bank says the decline may have hurt fund performance.
Sector preferences have also shifted. “Funds have been adding exposure to Communication Services over the last two years with no sign of slowing,” while Information Technology exposure has dropped to its lowest level in BofA’s data history.
Tesla (NASDAQ:TSLA) is also said to have seen a pickup in fund ownership following the election, while other Magnificent 7 stocks remained largely unchanged.
Financials and Industrials are reportedly seeing growing investor interest, with active ownership increasing.
However, BofA warns that “stocks that have screened in this decile would have lagged the index by ~5ppt p.a. since 2009.”
Despite improving market breadth, mega-cap stocks still dominate portfolios, says BofA.
“The avg fund has ~32% of AUM in just 5 stocks, up from ~26% at 2022 year-end,” BofA said, highlighting persistent concentration risk.
