Evercore (EVR) ISI’s latest Sector Allocation Survey reveals a growing confidence in cyclical sectors as both long-only investors and hedge fund managers have increased exposure to technology, energy, and industrials over the past month. This shift reflects a broader move towards sectors expected to perform well in periods of economic growth, despite concerns about inflation and global instability. Energy and materials saw notable upward trends in allocations, while defensive sectors like utilities and consumer staples saw declines.
The report highlighted that managers’ increased exposure to the industrials sector (XLI) was historically associated with positive performance in the following month, with a 67% chance of sector outperformance. Long-only investors also boosted exposure to real estate and communication services, while hedge funds showed a more balanced approach with increased positions in technology (XLK) and healthcare. The momentum in these sectors suggests optimism for their continued strength through year-end.
Market Overview:- Long-only investors have increased exposure to technology, energy, industrials, and real estate.
- Hedge fund managers similarly increased their positions in energy, healthcare, and materials.
- Defensive sectors like utilities (XLU) and consumer staples saw decreased exposure from both groups.
- The industrials sector is expected to see positive returns following increased exposure by both investor types.
- Energy (XLE) remains a favored sector, with hedge funds significantly boosting their positions.
- Healthcare showed continued strength with hedge funds holding long positions, despite overall market volatility.
- Investors will be watching how increased exposure to cyclical sectors translates to performance in the coming months.
- Energy and industrials are set for potential outperformance based on historical trends from previous surveys.
- Defensive sectors may continue to underperform as investors seek higher returns in growth sectors.
As investors shift towards more cyclical sectors, the focus remains on economic indicators that may support their performance. Energy and industrials, in particular, are poised to benefit from both macroeconomic tailwinds and increased demand. While the outlook for defensive sectors appears weaker, the continued strength in technology and healthcare suggests that market participants are positioning for growth, even as risks remain. The coming months will be critical in determining whether these bets on cyclical strength pay off.
As the year progresses, investors will closely monitor sector rotation trends, particularly how economic conditions and global risks impact their current allocations. The Evercore ISI survey provides key insights into where institutional managers see opportunities and risks, offering a roadmap for navigating the remaining months of 2024.
