The ten most overweight stocks in the UBS listing include half that are technology names, three that are healthcare names and one that is – gasp – a financial and another an old school media company. The list of the most unloved, the underweights, include arguably two of the most innovative names in US technology, four hard core consumer product names and a carbon burning leader alongside a Japanese car company. The UBS individual name report contrasts with the category study by Credit Suisse as potential relative value trends appear.
UBS and Credit Suisse reports come to slightly different if nuanced conclusions
An August 5 Credit Suisse research report points to general positions that are both loved and unloved by hedge funds. The report, “Carving Up The Consensus Comparing Hedge Fund, Mutual Fund, & Sell-Side Positioning By Industry Group, For US Large Cap & Small Cap,” points to hedge funds generally crowding into large cap investing categories such as Food Beverage & Tobacco, Software & Services, Semiconductors. The hedge funds in the Credit Suisse report are less excited about Media, Insurance and Automobiles & Components, which all populate the bearish underweight category.
Contrast this with the UBS quantitative report “Top 10 crowded trades: Where are the largest active positions” to find context.
The list of overweight global issues is a US affair and includes tech giants Amazon.com (#1), legacy tech giant Microsoft Corporation (#4) and two slots for decidedly new tech giant Alphabet, who occupies two spots in sixth place with the Class A shares and number ten with the Class C shares. Interesting to note the Technology Hardware and Equipment category among hedge funds in the Credit Suisse study is barely positive and, with a whisper of negative selling, could even fall into the bearish camp. Software & Services, however, is much higher in the bull camp.
Healthcare strong in UBS top stocks report, not so much in Credit Suisse category analysis
Healthcare is a reasonably strong theme in the UBS crowded trade report. UnitedHealth Group is the second most overweight stock, followed by Medtronic and Amgen Inc. at fourth place. However, in the Credit Suisse report Health Care Equipment & Services is just moderately positive while small cap healthcare stocks are significantly in a bearish crotch.
Perhaps as if to correlate even less, the UBS report points to terminally old school media company Comcast is ranking as the ninth most crowded trade, just behind one-time calculator manufacturer Texas Instruments. In the Credit Suisse report, however, large cap Media stocks are the most unloved of all sectors. With unbundling and the whispered approaching competition from a tech firm offering Internet access and 100 channels plus Netflix for under $30 per month, the dichotomy between the lists strikes up a real relative value test.
Apple and IBM are now unloved tech stocks while Microsoft is in the overweight category
Considering the back end of the UBS report, the top ten large cap stocks most unloved by investors, is in part to take a trip down memory lane. The once mightiest US manufacturing corporations – firms that actually produced something physical – are all generally ranked at the bottom. There is of course AT&T, which in many respects is competing with Comcast to various degrees.
The media distribution and connectivity management platform that is in part AT&T has different revenue channels that Comcast, but is nonetheless correlated to the performance driver of a cable bundle to various degrees. Comcast includes a robust media content generation component that neatly provides the ability to promote distribution with “pricing power” through its pipeline, while AT&T has taken a more commodity focused approach.
While Comcast / AT&T has the makings of an interesting long / short trade on the UBS list, the list also reflects a declining interest in once “rock solid” companies such as Procter & Gamble, now seventh on the most underweight list; likewise corporate medical legacy firm and “dividend king” Johnson & Johnson is on the outs while Amgen is popular.
In what might have been perhaps the trade of the 1990s, Microsoft is currently an overweight while IBM, at number 10, is an underweight. But the biggest underweight is interesting in that Apple, the top underweight stock, was at one point fighting for supremacy with IBM and now it is Microsoft that finds itself at the top of the list.
No US car company made either the large cap underweight or overweight list but Toyota Motor Corporation appears in the UBS unloved category. This actually correlates with the Credit Suisse report, which has large cap Automobiles & Components as its third largest bearish stock sector.
As previously reported, herding can create price momentum but when portfolios have dramatically expanded coverage to a particular name, that stock is subject to trend exhaustion. In fact, a BAML study notes the top ten most neglected stocks, those that are unloved, ended up being the best performers. General Electric, who is currently spending money with Comcast to brand itself as a world technology leader, might have hope. At number four on the UBS most underweight stocks it could be among several who are discovered as the prom king again one day, just ask John Paulson…