Investors still biased towards quality
The portfolios of Australian share fund managers are heavily biased towards the 'quality' end of the share market, according to research house van Eyk.
According to van Eyk, its proprietary database of fund manager holdings shows only six managers that were overweight value stocks by 5 per cent or more compared to the benchmark.
This compares with 47 strategies which had a 5 per cent or greater overweight to quality stocks, and an average bias towards quality of 8.3 per cent.
Indeed, Mark Thomas, chief executive of van Eyk, said that the tilt towards the quality end of the market had been the right strategy since the global financial crisis, because the rise in the market had been driven by only a relatively small number of stocks.
"Investors who are still bruised by the bear market have naturally been crowding into stocks that have a history of good yields, strong balance sheets and solid dividends, because they have been perceived as a safer exposure to shares," he said.
For Thomas, there are two important conclusions to be drawn from this data.
The first is that investors are still not wholly convinced of the durability of the share market rally or that we are yet in a sustainable bull phase.
He pointed to the US STALSTOX index as an example, which shows the collective view on asset allocation by Wall Street firms as an example.
"This shows the allocation to stocks is only about 45 per cent," he said. "Remarkably, this is much lower than the 50 to 55 per cent during the depths of the GFC.
"This suggests there is still a wall of money waiting on the sidelines."
Secondly, Thomas said that it implied that there might be an opportunity being missed by many managers in not taking a contrarian stance and re-assessing some of the cyclical stocks that have underperformed the market because of the strong focus by investors on quality.
"This four-year trend of quality outperforming cyclicals may have reached some sort of historical extreme, one not seen since 2003 when the Y2K bear market bottomed out and cyclical stocks started to outperform the expensive defensives," he said.
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