The world’s most overweighted and underweighted stocks by active fund managers

Daily roundup of research and analysis from the The Globe and Mail’s market strategist Scott Barlow

UBS’s Australia-based global quantitative strategist Paul Winter broke down the world’s most overweighted and underweighted stocks among active portfolio managers relative to their weighting in the MSCI All Country World Index.

The 10 most overweight stocks are (in order): Visa Inc. (Class A shares), Adobe Inc., Mastercard Inc (Class A shares), Alphabet Inc. (Class A shares), Alibaba Group Holding Ltd , salesforce.com Inc., Paypal Holdings Inc., Alphabet Inc. (class C shares), Comcast Corp (Class A shares), UnitedHealthGroup Inc.

The most underweighted stocks are Apple Inc., Nestle SA, Taiwan Semiconductor Manufacturing Corp., Tencent Holdings Ltd., Toyota Motor Corp., Exxon Mobil Corp., Novartis AG, Roche Holding AG, AT&T Inc., ASML Holding NV.

In recent years, the widely held stocks have outperformed – price momentum investing strategies have done well – but recent signs of sector rotation (energy stocks, for instance, are the top performers since the late March market bottom) make the outlook less clear for the relative performance of overweighted and underweighted stocks.

“@SBarlow_ROB UBS: World's most overweighted and underweighted stocks in active funds” – (table) Twitter

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An amazing chart from Morgan Stanley director of research David Adelman highlights the compelling case for U.S. value investing strategies,

“Value Is Always Cheapest During Recessions but It's Never Been This Extreme … the valuation spread between the cheapest 10 percent of the stocks in the Russell 100 versus the median on 3 normalized measures--Price/Book, Price/Cash Flow, and Earnings Yield – that spread is the widest it has been over the past 30 years, which includes 3 recessions, the bursting of the tech bubble, and the Great Financial Crisis. The widest spreads occur during recessions, like today, and the spread narrows as quickly as it widens as the economy recovers. Our Strategists see no reason why it won't be the same this time around.”

“@SBarlow_ROB MS: "Value Is Always Cheapest During Recessions but It's Never Been This Extreme" – (research excerpt, chart) – Twitter

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B of A Securities quantitative strategist Savita Subramanian (who remains my favoured source for U.S. earnings-related analysis) listed “Five lessons from 1Q earnings” in a Tuesday report,

“95% of results are in: 1Q earnings are 9% below analysts' expectations and a hair below our forecast, -15% y/y. Several trends are taking shape: 1) Margin expansion has paused. Non-financial net margins of 9.8% were the lowest since 1Q17, and down ~1 [per cent] q/q and y/y, mostly from Consumer Discretionary's, Energy's and Industrials' collapsing margins... 2) Bifurcated sectors: big misses in Financials & Discretionary, but 7 of 11 sectors beat. 3) Corporates prioritized liquidity over cash return/spend: 20% have suspended buybacks, 10% suspended/cut dividends. Capex is tracking +3% y/y … 4) Management goes dark: one-third of companies stopped guiding and optimistic language on calls was the weakest in our data history (since '03). 5) Analysts expect a V-shaped recovery, and see EPS hitting its prior peak ($164) in '21. Unless everything goes exactly right, we expect a deeper EPS hit (-29%) and a longer period to recover lost earnings (we expect $145-155 in '21)”

My interpretation here is that the market’s assessment of 2021 profits is still too high, and this implies a pullback in stock prices.

“@SBarlow_ROB Subramanian: 5 Lessons from Q1 earnings seasons” – (research excerpt) Twitter

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Diversion: “ 12 Great Streamable British Shows You’ve Probably Never Heard Of” – The Ringer

Tweet of the Day: @jsblokland #Value outperformed #Growth more than 2% yesterday, but remains down 20% since the start of this year” – Twitter

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