Bank of America strategist Savita Subramanian reported that the fourth quarter initiated a material repositioning among institutional investors, characterized by a movement "from gold to black gold." According to the note, money managers began adding exposure to Energy prior to the recent strikes involving the U.S., Israel and Iran, and subsequent retaliatory actions sent oil prices sharply higher.
The bank highlights that volatility tied to the U.S./Israel/Iran strikes has coincided with pronounced shifts in positioning, noting that West Texas Intermediate crude is up about 70% from the years low. Long-only funds increased their Energy allocations during the fourth quarter, even though roughly 70% of such funds remain underweight the sector relative to benchmarks.
As managers accumulated Energy exposure, they trimmed positions in commodity-sensitive Materials. At the same time, positioning in Gold futures dropped substantially - moving from the 81st percentile last summer to the 51st percentile at present, according to the note.
Equity positioning shifts
Subramanian also described shifts within equity allocations. Long-only managers reportedly reduced weightings in communications services names that have exposure to AI, as well as in utilities and many of the largest hyperscaler companies during the fourth quarter. The largest increase in allocations after Energy went to Real Estate. Health Care and consumer sectors were also net buys, while Technology positioning remained largely unchanged.
Despite the relative strength of value-style stocks this year, Bank of America observes that Value factors are still more under-owned than any other factor group. Sectors traditionally underweight in many portfolios - Financials, Energy and Materials - carry larger weights in value benchmarks, and the banks regime indicators suggest a constructive backdrop for Value going forward.
The note additionally calls out rising dispersion and higher active share as signals that differentiation among managers is increasing. Roughly 60% of stocks have outperformed the index year-to-date, a statistic the bank uses to reinforce the view that it may be an opportune period for active positioning.
Key takeaways
- Investors began rotating from gold into Energy during Q4, contributing to a strong rally in oil.
- Gold futures positioning fell from the 81st to the 51st percentile; Materials exposure was reduced.
- Within equities, managers cut some AI-exposed communications services and utilities exposure while adding Real Estate, Health Care and consumer names; Tech was mostly unchanged.
Outlook considerations
- Value factors remain relatively under-owned despite value performance, and regime indicators point to a constructive setup for Value.
- Rising dispersion and active share indicate greater opportunity for differentiated portfolios, with about 60% of stocks outperforming the index so far this year.