Hedge Funds, Mutual Funds And Sell-Side's Most Loved And Hated Sectors

A new report by Credit Suisse analyst Lori Calvasina focuses hedge fund, mutual fund and sell-side positioning by industry group. Despite varying positioning in most industries, there were several areas in which there is currently both bullish and bearish unanimous positioning.

What Everybody Loves

According to the Credit Suisse data, there is a consensus bullish bias toward Large Cap Food & Staples Retail at the moment. Hedge fund positioning in the group is elevated, the percent of mutual funds that are overweight is elevated and sell-side net buys are near 12-year highs.

Calvasina notes that hedge fund positioning is particularly important for the group, as net hedge fund exposure has demonstrated an 84 percent correlation to the group’s performance in the past year and a half.

Small Cap Software & Services also has unanimous support, with both percentage of mutual funds overweight and sell-side net buys at 12-year highs.

What Everybody Hates

There are three groups that currently share bearish hedge fund, mutual fund and sell-side sentiment: Small Cap Household & Personal Products, Large Cap Energy and Large Cap Capital Goods.

“For Energy, we have seen an uptick in both sell-side ratings and mutual fund overweights, suggesting that a bottom in sentiment may have occurred for this group among these two investor segments,” Calvasina wrote. However, Energy bulls should not get too excited until the data indicates an inflection point in hedge fund net exposure, which has a 93 percent correlation to Energy Sector share prices since 2014.

Financial Rotation

Calvasina also notes an interesting rotation trend in the Financial Sector ahead of the Federal Reserve’s anticipated interest rate hike. Hedge funds have begun dumping Small-Cap Banks in favor of Large-Cap Banks. Credit Suisse anticipates that the rotation into banks will continue, as higher interest rates provide attractively-valued banks with the opportunity to boost net interest margins.