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Equity managers overcome OFE jitters, confirm cyclical equity overweight

FUND MANAGER SURVEY: Equity managers overcome OFE jitters, confirm cyclical equity overweight

Sentiment amongst Poland-based asset managers rebounded nicely after several months of pension reform scare, with the PAP Market Insider October Fund Manager survey showing a rise in equity allocations and corporate earnings views along with a reinforcement of prevailing cyclical sector preferences.

Average equity allocations - 60% of the panel (ex-OFE) claims to be overweight equity vs their benchmark - rose from the prior month reading and are recovering well after several months of pension policy scare.

Average equity allocations nonetheless remain below levels from the all-time high struck in May. The four highest average equity allocation readings in our research history have all been posted since the April survey.

EQUITY ALLOCATION: %of panel (ex-OFE) saying equity weight vs benchmark is:

  Oct 13 Sept 13 Aug 13 Jul 13 Jun 13 May 13 Apr 13 Mar 13
aggressively overweight 25 33 22 38 20 43 14 25
moderately overweight 38 11 33 13 50 43 57 38
neutral 38 44 22 25 20 14 29 25
moderately underweight 0 11 22 25 0 0 0 13
aggressively underweight 0 0 0 0 0 0 0 0
                 
Net % (ex-OFE) overweight 63 33 33 25 70 86 71 50

 

Positioning within that equity overweight is relatively aggressive. The panel has moved month by month since summer into a very strong preference for small- and mid-cap names and the panel reinforced a series of preferences for cyclical sectors and distaste for defensives.

 

SMALL/LARGE CAP PREFERENCE: Percent of panel claiming:

  Oct 13 Sept 13 Aug 13 Jul 13 Jun 13 May 13 Apr 13 Mar 13
strong preference for large caps 0 0 0 11 8 0 0 0
moderate preference for large caps 0 0 10 11 15 43 25 38
no large/small cap preference 40 55 60 22 46 43 63 13
moderate preference for small caps 30 36 20 22 15 14 0 13
strong preference for small caps 30 9 10 33 15 0 13 38
                 
Net % preferring large caps -60 -45 -20 -33 -8 29 13 -13

 

The sector stance remains highly cyclical, as it has been since roughly the March survey.

Since August, views to the favored sectors of Financials and Industrials have additionally built more on fundamentals, seemingly less on pure expectations of flows. Telecoms and Utilities remain fully anathema for the panel, underweighted and disliked for every element of outlook.

 

An ad-hoc indicator of sector preferences (the net of composite indicators for cyclicals Industrials, Consumer Discretionary and Financials against the composite indicators for defensives Telecom, IT and Utilities) has rendered its three highest/most cyclical readings on record over the past three months.

 

SECTOR PREFERENCES - COMPOSITE INDICATORS

  Oct 13 Sept 13 Aug 13 Jul 13 Jun 13 May 13 Apr 13 Mar 13
Energy 11 -109 -70 -54 -86 -14 -23 29
Materials -39 75 32 69 65 148 68 138
Industrials 186 187 187 160 178 195 143 183
Consumer discretionary 82 94 72 22 24 -29 -38 8
Consumer staples 0 10 -40 -69 -55 0 0 -4
Health Care -50 -18 -40 -25 3 -29 64 -21
Financials 176 178 238 126 129 121 157 125
Information technology -10 -9 -10 57 42 -71 0 -92
Telecommunications -180 -173 -200 -114 -123 -86 -213 -154
Utilities -190 -164 -170 -33 -94 -171 -113 -129

 

Bit by bit, Industrials has fought its way to the top of the overweight list, passing Financials which had dominated all other sectors in portfolios since mid-2011 (the early overweight on Financials had been built purely on liquidity considerations and despite doubts over the earnings outlook, a discrepancy that has disappeared from the August survey).

 

In allocation forecasts, Industrials also remains the panel`s top `Buy, but the survey offers no insights into the break down for construction firms versus capital goods makers.

 

Greater volatility in sentiment is rather found in views to Materials (down m/m on every measure) and Energy (up m/m on improved views to market performance after a month of market gains). Evolution in sentiment might have more potential impact on consumer discretionary, where the overweight remains only moderate and buyers fewer despite a lack of naysayers on market and earnings outlook.

 

The PAP Market insider October 2013 Fund Manager Survey was conducted between September 26 and October 1 on a sample of twelve asset management houses with benchmarked portfolios captive to Poland.

2013-10-04



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