Hedge Funds Snap Up U.S. Equities as Other Investors Bail

Hedge funds have been buying U.S. stocks as institutional investors keep up their selling streak, according to Bank of America research. 

Institutional and private clients sold U.S. equities for a seventh straight week while hedge fund managers were net buyers over the past four weeks, Bank of America said in a March 11 report. Hedge fund managers sold exchange-traded funds last week to focus on stock picking across eight sectors.

As the stock market fell, hedge funds made their largest net purchases last week in real estate, industrials and health care, according to the report. Health-care stocks were not popular with pension funds over the same period, with Bank of America saying the sector represented their biggest U.S. equities sales.

Stock markets have been tumultuous over the past year, presenting opportunities for actively managed funds to distinguish their performance from passive investors, such as ETFs, which track broad indexes. The Standard & Poor’s 500 stock index, which measures the performance of large U.S. companies, fell about 2 percent last week but is still up about 11 percent this year through March 11.

Large-cap stocks have been the most popular category among hedge funds over the past four weeks, according to the Bank of America report. While they also bought mid-cap shares, hedge fund managers were net sellers of small-cap stocks over the past month.

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Institutional clients, which include pension funds, mutual funds, insurance companies, and banks, were also buyers of mid-cap shares over the past four weeks. But unlike hedge funds, they sold large-cap companies. They also unloaded shares of small companies, making them net sellers of U.S. equities over the past month.

Within the institutional group, pension funds were net buyers of U.S. stocks over the past four weeks, favoring mid-cap stocks and ETFs, the report shows. Last week, though, pensions divested shares across eight sectors to become net sellers of equities in the period as they flocked to utilities.

“Flows into utilities stocks were the largest in three years,” the Bank of America analysts said.  

Beyond health care, pension funds were net sellers last week of communication services, industrials, materials, staples, consumer discretionary, financials, and energy stocks, according to the report.