Interactive Investor

Fund managers feast on this group’s shares

10th August 2021 15:38

Graeme Evans from interactive investor

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Our equities writer examines research from investment bank UBS that highlights some interesting crowded trades.

 

Fund managers are crowding around caterer Compass (LSE:CPG) and consumer goods giants Reckitt Benckiser (LSE:RKT) and Diageo (LSE:DGE), a survey showing the top 10 UK “overweight“ stocks has revealed.

UBS's weekly research on the most-crowded trades is potentially interesting because it points to the stocks most at risk of heavier selling in the event of negative sentiment, given that investors are likely to unwind their positions at the same time.

The list of overweight stocks in the UK, where active holdings are greater than their benchmark weighting, is led by Compass as managers back the company to do well in the pandemic recovery amid the return of sporting events and reopening of workplace canteens.

Recent updates from Compass have revealed progress on rebuilding its margin back above 7%, including through contract renegotiations and resizing of the business. It has also been encouraged by the level of new business wins in defensive sectors such as healthcare.

Those managers positioned around London Stock Exchange, which is fourth on the UK list, have been cheered in recent days after shares surged following a better-than-expected update on the integration of data services business Refinitiv.

Income stocks Imperial Brands (LSE:IMB) and British American Tobacco (LSE:BATS) are among other overweight stocks, with the top 10 made up of speciality chemicals firm Croda International (LSE:CRDA), grocery delivery firm Ocado (LSE:OCDO), the miner Anglo American (LSE:AAL) and Asia-focused insurer Prudential (LSE:PRU).

At the opposite end, Unilever (LSE:ULVR) is currently the most underweight and ranks ahead of HSBC (LSE:HSBA), AstraZeneca (LSE:AZN) and BP (LSE:BP.). Among smaller top-flight stocks, credit-checking firm Experian (LSE:EXPN) and building materials supplier Ferguson (LSE:FERG) are less popular in investment portfolios.

Globally, fund managers are most overweight on General Electric (NYSE:GE), while the tech giants Facebook (NASDAQ:FB) and Google owner Alphabet (NASDAQ:GOOGL) also feature among the top five most-crowded trades. Others in the top 10 include Mastercard (NYSE:MA), PayPal (NASDAQ:PYPL) and Microsoft (NASDAQ:MSFT).

The bottom five underweights globally are Apple (NASDAQ:AAPL), NVIDIA (NASDAQ:NVDA), Alibaba (NYSE:BABA), Taiwan Semiconductor Manufacturing (NYSE:TSM) and Tesla (NASDAQ:TSLA).

UBS launched its research into the most-crowded trades in 2016. It said at the time: “Once these trades reach their critical value, or an exogenous shock occurs, we expect a sharp price reversal as investors unwind their exposure in tandem.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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