While clients have been less hungry for stocks, advisors looking at trends emerging from the trading activity of U.S. diversified equity funds will notice allocations to healthcare, tech and consumer services on the rise.
Lipper defines a USDE fund as one that is domiciled in the U.S., invests at least 80% of its assets in equities, has at least 75% of its assets invested in U.S. holdings, and is not mandated by prospectus to invest in any one specific sector.

Taking a top-down view of the macro data starting from the industry level shows stocks in the financial sector accounted for the largest chunk of the total market value held by USDE funds, 16.1% as of April 30.

This is down from 16.7% at the end of 2014, shedding almost $8 billion in assets.

Another big mover in 2015 has been the health care industry. As of year-end 2014, health care stocks ranked fourth on the sector list, accounting for 14.8% of the total market value held by USDE funds. Currently, while health care is still ranked fourth, its allocation has appreciated to 15.7%, since it has added over $27 billion to its overall market value.

At the top of the list are stocks in the technology (16.7%) and consumer services (16.5%) sectors. Both of these sectors have experienced slight appreciations since year-end 2014; their allocations have grown 0.2% and 0.3%, respectively. After financials, the second biggest decline in aggregate market value belongs to stocks in the oil and gas industry. USDE funds have reduced their holdings in oil and gas stocks by over $4.4 billion (-0.3%), which has dropped their share of the pie to 5.6%.

Roughly 25% of the decrease in the financial sector holdings is attributable to one fund, Fidelity Contrafund (FCNTX). The fund has reduced its holdings in financial sector stocks approximately $2.1 billion since the end of 2014. The biggest contributions to this decrease resulted from the fund’s selling Bank of America (-12.3 million shares) and American Express (-6.0 million shares). Two other Fidelity funds also have had significant reductions in financial sector stocks. Fidelity Advisor New Insights Fund (FINSX) shed $800 million, and Fidelity Capital Appreciation Fund (FDCAX) liquidated over $400 million.


The changes for the health care industry are not as concentrated as those for the financial sector. The largest increase in health care holdings among USDE funds belongs to American Funds Washington Mutual Investors Fund (AWSHX), which grew its health care holdings by $1.8 billion to $9.3 billion. The two most significant contributors to this increase were the fund’s increasing its holdings in Pfizer by 3.4 million shares and its establishing a 2.5-million-share position in Eli Lilly.

Three other American Funds products were among the USDE funds with the largest increases in their allocations to health care stocks. American Funds Growth Fund of America (AGTHX), American Funds AMCAP Fund (AMCPX), and American Funds Fundamental Investors (ANCFX) added $1.4 billion, $1.3 billion, and $650 million, respectively.

The increase in technology stocks in USDE funds is also relatively dispersed. Harbor Capital Appreciation Fund (HACAX) accounts for the largest increase in market value (+$1.4 billion) for its technology holdings.

This increase is attributable to the fund’s adding shares to stocks it already owned (Apple and Twitter) as well as its establishing a new position in NXP Semiconductors of 1.6 million shares.

Right behind Harbor Capital Appreciation Fund are two T. Rowe Price products: T. Rowe Price Growth Stock Fund (PRGFX) has increased its tech sector market value by $1.1 billion, while T. Rowe Price Blue Chip Growth Fund (TRBCX) is up almost $800 million from year-end 2014.

The consumer services sector (+0.3% in market value for the year to date) reaped the benefits of some of the selling of financial sector stocks. Fidelity Contrafund (FCNTX), which accounted for the largest sell-off of financial stocks, also accounted for the largest increase in consumer services stocks (+$1.8 billion). The fund accomplished this by establishing new positions in Dollar Tree (1.6 million shares) and Walmart (1.5 million shares) and adding to its holdings in Home Depot (+1.0 million shares) and Starbucks (+630,000 shares).

We were also able to identify that the American Funds that were buying health care stocks were also buying consumer services stocks. American Funds Washington Mutual Investors Fund (AWSHX) added $1.1 billion to its consumer services holdings by establishing a 6.0-million-share position in CVS and adding to already-established positions such as Comcast (+10.8 million shares). American Funds AMCAP Fund (AMCPX) and American Funds Growth Fund of America (AGTHX) added $833 million and $754 million to their consumer services market values.

Some of the aforementioned funds also liquidated significant amounts of their stakes in oil and gas stocks. American Funds Growth Fund of America (AGTHX) paced the group with a market value decrease of over $600 million. The biggest factor in this reduction was the fund’s selling of FMC Technologies (-13.0 million shares), Chesapeake Energy (-11.3 million shares), and Cheniere Energy (-10.5 million shares). Circling back to the fund level, right behind AGTHX in selling oil and gas stocks were Fidelity Contrafund (FCNTX) and American Funds Fundamental Investors (ANCFX), which lowered their respective oil and gas market values by $542 million and $405 million.


Stocks that have experienced the largest aggregate changes in market value for the year to date within the USDE fund universe include: Amazon.com (consumer services sector), which has led the way with an increase of just over $5.0 billion in aggregate market value. The stock is currently held by 241 USDE funds, up from 219 at year-end 2014. 

The majority of the remaining top increases are for technology sector stocks (Apple +$4.6 billion, Twitter +$2.6 billion, Facebook +$2.3 billion), while Biogen Inc. (health care) registered the third largest increase at $3.0 billion. The number of funds that owned Apple has been static, but the remaining stocks all are seeing new ownership. Twitter has had 29 funds initiate a new position in its stock, while Facebook and Biogen have had 16 and 13 funds do the same.

On the sell-side Microsoft (technology), with a decline of $5.1 billion, suffered the largest decrease in USDE market value. Fourteen funds completely liquidated their holdings in Microsoft. Bettering Microsoft somewhat were two financial sector stocks: American Express (-$3.0 billion) and Bank of America (-$2.5 billion). These two stocks contributed heavily to the overall reduction in market value (approximately $8 billion) in financial stocks for USDE funds.

A consumer goods stock, Procter & Gamble, had the fourth largest decrease by market value for USDE funds. The two biggest contributors to the decrease in Procter & Gamble were Fidelity Contrafund (FCNTX) and American Funds Washington Mutual Investors Fund (AWSHX), which sold approximately 2.5 million and 1.2 million shares.

AbbVie, a health care concern, saw its holdings in USDE funds dip $2.2 billion. AbbVie entered into a merger agreement with Pharmacyclics, Inc. in March, and the fund universe appears to be voting with its feet on the merits of the deal; funds are getting out of the stock.

Patrick Keon is a Lipper research analyst specializing in U.S. fund classifications and portfolio analytics.

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