This week brings the end of the third quarter, which means that some fund managers may be rebalancing their portfolios for the end of the quarter. Major technology names have long been favorites of active fund managers, and this year has especially been a roaring year for most of them. As a result, it comes as no surprise that tech majors hold about half the slots on one firm’s top-ten overweight stocks list, especially given how well growth stocks have performed this year, but there is one notable omission.
In their overweight stocks list for last week, UBS analyst Shanle Wu and team grouped the companies by various categories. They offered a global overweight stocks list and also lists for developed markets, U.S. large caps and several others. In addition to listing the biggest overweight positions, they listed the biggest underweights, and as you can see, Apple holds the top spot for biggest underweight position globally.
It will be interesting to see whether Apple's listing as an Underweight will change, as the company's iPhone X, 8 and 8 Plus were revealed earlier this month. The iPhone 8 and 8 Plus landed on store shelves and in the hands of those who preordered them on Friday, and investors seemed shaken about the lack of demand for Apple's newest phones, if the decline in Apple stock is any indication. The iPhone X won't be released until November.
Looking back at the Overweight side of the list, Alibaba, Microsoft, Priceline and Alphabet all hold positions in the top ten.
Apple again holds the top Underweight position on the overweight stocks list for global developed markets. Microsoft moves up a slot, as does Alphabet. Alibaba isn't included.
In the U.S., Apple is still the biggest Underweight, according to UBS. Microsoft, Alphabet and Priceline all still made the overweight stocks list for the U.S. as well.
To determine the biggest overweight and underweight positions, the UBS team used FactSet data on institutional ownership to create "an active trading portfolio by aggregating positions across global active managers." They compared the weights they calculated with the relative equity index benchmark to list the active weight.
Tech is "the poster child for growth," according to CFRA Investment Strategist Lindsey Bell, so it's no surprise that major tech names dominate the overweight stocks list. In a note on Sept. 14, Bell noted that growth has been one of the leading factors this year. The Technology sector itself is on top of the markets this year with an approximately 26% gain and more than 20% earnings growth in the first six months of the year. Excluding Energy, which finally recovered dramatically after nine losing quarters, Technology is the best-performing sector.
Bell noted that late last year, investors rotated into value because they expected Donald Trump's administration to implement some growth policies that would be beneficial for the markets. However, the value trade unwound as this year went on and investors reacted to the ongoing gridlock in Washington. She predicts that growth stocks will continue to outperform in the near term, noting that we're entering the time of year that's usually strong for cyclical stocks, and Technology usually does well this time of year as well.