Global funds switch focus from tech to value shares to play recovery

We name the shares that global fund managers have been snapping up for the post-pandemic recovery.

Global fund managers have been making changes to their portfolios in an attempt to capitalise on the post-pandemic recovery.

Data from FE Analytics shows that over the past three months (to the end of February), global funds have been increasing exposure to cyclical shares, with banks and miners proving particularly popular. The top 10 most-purchased shares over the period include: JP Morgan Chase (NYSE:JPM), Rio Tinto (XETRA:RIO1), First Republic Bank San Francisco (NYSE:FRC) and Anglo American (XETRA:NGLB).

The latest Bank of America Merrill Lynch Global Fund Manager Survey also highlightsthis trend.The survey found that fund managers were overweight cyclical stocks, such as banks and commodities.

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Richard Hunter, head of markets at interactive investor, says, “it is too early to trumpet a complete economic recovery in the US”, but points out that “banks are well placed to benefit if and when it arrives”.

He adds: “The US banks recently reported first-quarter numbers that were generally far stronger than the market had been expecting.

“As with their UK counterparts, US banks made provisions for bad debts as the pandemic hit which ran to tens of billions of dollars. As things currently stand, these impairments have not materialised to anything like the extent first feared and so the reserves have been partly reversed.”

Hunter adds that pressure is likely to remain on net margins, due to interest rates being at historic lows.

But he notes that another positive is that “net income has yet to recover to pre-pandemic levels and comparatives against a soft 2020 could further flatter numbers in the second quarter of 2021”.

Disney tops the list of fund manager buys 

Topping the list of most-bought shares among global funds over the period is Disney (NYSE:DIS), which was a recent purchase for the Mid Wynd International Investment Trust (LSE:MWY). Appearing on interactive investor’s Funds Fan podcast earlier this year, fund manager Simon Edelsten explained that one part of the company thrived through the pandemic (the Disney+ plus streaming service), while the other was negatively impacted (theme parks).

“There’s part of the company moving into the online world through the streaming service very well, and then another part of the company where we’re just going to have to wait for the world to return to normal,” said Edelsten.

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At the other side of the trade is some profit-taking in firms that have benefited during lockdown periods. Technology companies including Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) are among the top 10 most-sold shares over the three-month period.

Some profit-taking, but the tech giants remain popular 

However, the trio continue to be among the biggest positions in most global funds’ top 10 holdings. Amazon is the second most-held stock, Apple is the third and Facebook is in sixth place.

Microsoft (NASDAQ:MSFT) is the most held stock overall. In an interview with interactive investor in February, Terry Smith, fund manager of Fundsmith Equity, named Microsoft as the fund’s best investment over the past decade.

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The move into value shares is being mirrored by UK funds. As reported last month, UK fund managers have been moving into shares that are expected to perform well under the ‘reflation trade’, a term used to describe a combination of both the global economy and inflation picking up sharply at the same time. Among the shares that UK fund managers have been snapping up are Next (LSE:NXT) and Gym Group (LSE:GYM).

Rupert Thompson, chief investment officer at Kingswood, notes “the big story since November has been the rotation away from the expensive high ‘growth’ areas, which were the big winners last year, to the cheaper more cyclical ‘value’ areas.”

He adds: “The energy, materials and financial sectors have all outperformed significantly. The fall back in bond yields has led to the rotation unwinding a little this month but we expect this reversal to be only temporary. The combination of a strong economic rebound, a renewed upward trend in yields and a still unusually large valuation gap between growth and value stocks should lead to a resumption of the move in favour of value.”

Top 10 shares global funds are buying and selling (by volume) 

Source: FE Analytics. Data covers a three-month period to the end of February 2021.

Most widely held stocks in global funds’ top 10 holdings

Source: FE Analytics. Data covers a three-month period to the end of February 2021.