- Bank of America notes that stocks that funds are overweight in tend to outperform, and vice versa.
- Chinese stocks saw massive outflows from funds in July as regulatory pressures ramped up.
- Here are the 10 stocks that funds are most overweight in right now, according to Bank of America.
- See more stories on Insider’s business page.
Mirror the moves of long-only funds to get an edge in stock-picking. That’s the big takeaway from a recent Bank of America note written by quant strategist Nigel Tupper and his colleagues.
Stocks that funds are increasingly overweight, or bullish on, outperformed their decreasingly overweight counterparts in every region worldwide in July without exception, Tupper wrote.
The trend has held up throughout 2021, as increased overweights beat decreased overweights by 5.4% in the US, 3.9% in Europe, 8.7% in Japan, 9.9% in the rest of Asia, and 5.8% in emerging markets, the note read.
Bank of America
Five of the eight biggest stocks in the world — Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), Amazon (AMZN), and Berkshire Hathaway (BRK.B) — were funds’ least-loved stocks in July, according to Bank of America. Apple and Microsoft were the two most underweight stocks by funds globally in July but have managed to log respective gains of 4.3% and 6.2% in the last month.
Bank of America
Funds cut their exposure to stocks by $32.5 billion in July, the note read. Big-money investors shifted money away from stocks in the US (-$3.3 billion), emerging markets (-$22.6 billion), and Asia (-$15.3 billion), Tupper noted, adding that Chinese stocks were largely to blame as the country’s all-powerful government continues to crush investors’ confidence.
“Funds have reduced active exposure to China for the sixth consecutive month as the regulatory crackdown expanded to multiple sectors,” Tupper wrote.
China’s Consumer Discretionary sector was hit especially hard with a net loss of $12.2 billion, which dragged the Global Consumer Discretionary sector down by $19.7 billion in the month.
Conversely, long-only funds added exposure to stocks in Europe by $6.9 billion and Japan by $1.8 billion, the note read. The inflows into European equities came despite Bank of America downgrading the region’s stocks to neutral from positive in late July.
Bank of America
Funds were most bullish on the Global Communication Services and Global Industrials sectors, adding exposure by a net $8.4 billion and $9.6 billion, respectively. By contrast, Tupper noted that funds remained underweight in the Energy, Financials, and Materials sectors, though he added that stronger global earnings and higher bond yields could spark a reversal in this trend.
Bank of America
Below are the 10 stocks that long-only funds are increasingly overweight, according to Bank of America, along with each stock’s ticker, market capitalization, and price-to-earnings ratio.
To make the list, stocks had to be held by at least 50 funds with an average weight of at least 0.15% and an average daily turnover of over $10 million. Additionally, Tupper noted that the total dollar value of the aggregate active weight had to be more than $500 million.