Hedge Funds Lead Sector Rotation

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The week of July 19th has seen massive volatility in equities. The major indices saw a huge drop on Monday, the 19th due to fears of COVID Delta variant and stalling growth. But ended the week with all major indexes making record highs. There has been a lot of discussions on market rotations and growth vs. value debates have filled the news media.

Here’s a quick look at some charts to map movement from small-mid cap stocks to large cap, and value vs. growth over the last few months. We’ll see this against the backdrop of 10-year treasury yield.

Hedge Funds started this rotation in April: In my previous blog 13F Analysis with Bloomberg Port, I’ve analyzed 2021Q1 13F filings of Hedge Funds. I split the equity filings into three groups - the new-buys, selloffs and no-change stocks. I combined the new-buys and no-change equities common across 2 or more hedge funds into single portfolio (calling it FLNG_Q121_1), and analyzed it using Bloomberg PORT.  Chart 2 below shows Style exposure for the FLNG_Q121_1 portfolio. Growth and Leverage have higher, positive exposure. And Value and Dividend Yield have negative exposure. The list is sorted… so Value and Dividend Yield is at the bottom. This indicates that the hedge funds that started their rotation away from Value and into Growth starting April 2021. 

Chart 2: Style Factor exposure for FLNG_Q121_1 portfolio vs. SPY ETF (proxy for S&P500)   [Data Source: Bloomberg]

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