Q4 marked the start of rotation ’from gold to black gold’: BofA

Investing.com -- A shift in investor positioning began in the fourth quarter as money managers rotated “from gold to black gold,” according to a note from Bank of America strategist Savita Subramanian on Tuesday. 

The strategist highlighted a move into Energy even before the recent U.S.-Israel strikes on Iran, and retaliatory strikes pushed oil sharply higher.

BofA notes that “volatility since US/Israel/Iran strikes indicates severe positioning shifts, with oil (WTI) up ~70% from the year’s low.” 

Long-only funds started increasing Energy exposure in Q4, but “~70% are still underweight,” the bank says. 

As investors added Energy, they “faded commodity-exposed Materials,” while positioning in Gold futures plunged from the “81st percentile last summer to the 51st percentile today.”

Subramanian also highlighted a parallel rotation within equities.

Long-only managers are said to have “reduced positioning in AI-exposed Comm. Svcs and Utes as well as most hyperscalers in 4Q but added in Real Estate,” which saw the second-largest increase after Energy. 

Health Care and consumer sectors were also bought, while Tech positioning was “largely unchanged.”

Despite the performance of value stocks this year, BofA notes that Value factors “remain more under-owned than any other factor group.” 

Traditionally underweight sectors such as Financials, Energy and Materials are “all bigger weights in the Value benchmark,” and the bank’s regime indicators point to a “constructive backdrop for Value ahead.”

The bank also flags rising dispersion and increasing active share as signs that “it’s a good time to be different,” with roughly 60 percent of stocks outperforming the index year-to-date.