Top Long-Only Managers Increase Exposure in Tech, Industrials, and Financials - Citi Report
In a recent report by Citi, long-only managers have significantly increased their exposure in tech, industrials, and financials, while reducing holdings in energy, health care, and real estate. This trend has been consistent over the past two months, with energy being the only sector experiencing outflows.
On the other hand, hedge fund flows have been skewed towards selling, with only a few sectors seeing net inflows. Financials, health care, and energy have seen increased exposure from hedge funds, while consumer staples, tech, and industrials have experienced the largest net outflows.
Citi's flow-based relative value model has also seen some changes, with tech replacing real estate among the top three sectors. Utilities and materials now rank in the bottom three, replacing tech and communications.
Market internals suggest a shift away from "Soft Landing" sector positioning, resembling a blend of "early recession" and "recession late" scenarios. Recent price action has seen a decline in the "Soft Landing" correlation, while the "Overheat" correlation has risen. Citi's strategists caution that a positive "Overheat" correlation has historically spelled trouble for the S&P, and investors should monitor this closely.
Despite weak consumer confidence data, the Dow, S&P 500, and Nasdaq closed at record highs on Tuesday, driven by a surge in mining stocks following China's stimulus announcement.
In summary, long-only managers are increasing exposure in specific sectors, while hedge fund flows remain biased towards selling. Changes in Citi's relative value model indicate shifts in sector rankings. Market internals suggest a deviation from "Soft Landing" positioning, with caution regarding the rising "Overheat" correlation. The record highs in major indices reflect market optimism despite underlying economic data. Investors should stay vigilant and adjust their portfolios accordingly.