Just a handful of Tech stocks and the FANG names have been driving most of the stock market’s recent gains, and active managers took advantage of their momentum to post some big gains. However, value stocks haven’t been doing so well, and active managers cut their exposures and sought yields in growth stocks instead.

Carried along by momentum in Tech stocks

In their latest monthly update on active managers’ holdings, Bank of America Merrill Lynch strategist Savita Subramanian and team analyzed the holdings of large cap portfolio managers. They said 75% of the assets they examined reflected holdings as they stood in March and April. However, stock movements this week seem to suggest that much of the trends they found are continuing, as momentum stocks like Amazon and Tesla continue the tear they’ve been on for most of the year.

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In fact, CNBC’s Jim Cramer had a warning for investors this week when Amazon hit $1,000 and then retreated: either other stocks are about to follow other key momentum names like Amazon and Tesla, or it’s a red flag that the rally in those few stocks isn’t sustainable. He said that he would feel more comfortable if more than just a small handful of momentum names were on the rise.

The BAML team found that active managers continued doubling down on momentum names with a particular focus on Tech stocks. They note that the Tech sector returned 12.6% during the first quarter, which is more than twice what the S&P 500 returned during the quarter. Active managers also extended their record overweight positioning in Tech stocks, which they said is based on data going back to 2008.

Record overweight positions in Tech stocks

The BAML team found that active managers were 24% overweight on Tech stocks, and the only sector they were more overweight on was Discretionary, which they were 31% overweight on. They add that the overweight positioning in Tech stocks is nearly two standard deviations higher than the average position.

The strategists clarified that active managers recently closed their underweight in Tech Hardware, which has been the main driver for the recent uptick in the overweight positioning in Tech stocks.

Short-covering is driving gains in FANG stocks

Speaking of Tech stocks, the FANG names (Facebook, Amazon, Netflix, Google/Alphabet) have again become a big focus among investors. The group has gained almost 30% year to date, compared to only an 8% gain for the S&P 500. The BAML team said active managers are now about 71% overweight on the FANG stocks.

active managers FANG tech stocks value

The strategists would also add some other Tech stocks to the FANG group to make it FAAANG, and Apple isn’t one of the two extra A’s. The others are Adobe Systems, which has gained 38% year to date, and Broadcom (AVGO).

However, they add that this relative weight in the FANG stocks has been fairly flat for almost a year, which means that short-covering rather than active buying may be driving the recent increase in the group.

active managers tech stocks FANG value

Further, the BAML team found that active managers aren’t buying all Tech stocks, as they are now underweight on names like IBM and Yahoo more now than ever before in the history of their data.

Active managers shun Value stocks in favor of Growth

Beyond Tech stocks, the BAML team also found that active managers boosted their exposures to Growth sectors while slashing their positioning in Value sectors by 730 basis points over the last 12 months. They explained that this shift has set a new record for their data history as active funds are now nearly 10% overweight Growth sectors and 10% underweight Value. They report that Materials and Health Care were the only two Growth sectors that active managers greatly slashed their exposures to, with the former falling to more than two standard deviations below the average and the latter slashed to its lowest level in nearly six years.

Active managers cut Energy for the third consecutive month and are now more underweight Energy than they have been since August 2016. This is particularly interesting because the sector finally started to recover from the earnings recession it encountered for so long.

Within the Financials sector, active managers are becoming more and more cautious on Banks and Insurance, another trend that’s continuing as several big bank stocks have struggled this week. They boosted their exposure to Capital Markets, but they were more underweight Financials than they were last month and far below their average long-term exposure.

The BAML team adds that active managers cut their exposures to Staples and Utilities to record lows as well.