Investor positioning began shifting in the fourth quarter as money managers rotated capital “from gold to black gold,” according to a note released Tuesday by Bank of America strategist Savita Subramanian.
Subramanian pointed out that investors had already started increasing exposure to Energy before the latest U.S.-Israel strikes on Iran, with the subsequent retaliatory attacks driving oil prices sharply higher.
Bank of America said that “volatility since US/Israel/Iran strikes indicates severe positioning shifts, with oil (WTI) up ~70% from the year’s low.”
According to the bank, long-only funds began building Energy positions in the fourth quarter, although “~70% are still underweight.”
As allocations to Energy increased, investors simultaneously “faded commodity-exposed Materials,” while positioning in Gold futures dropped sharply from the “81st percentile last summer to the 51st percentile today.”
Subramanian also pointed to a rotation occurring within equity sectors.
Long-only managers have reportedly “reduced positioning in AI-exposed Comm. Svcs and Utes as well as most hyperscalers in 4Q but added in Real Estate,” which recorded the second-largest increase in allocations after Energy.
Investors also increased exposure to Health Care and consumer-related sectors, while allocations to Technology were described as “largely unchanged.”
Despite the relative strength of value stocks this year, Bank of America noted that Value factors “remain more under-owned than any other factor group.”
Sectors that are typically underweighted—such as Financials, Energy and Materials—“are all bigger weights in the Value benchmark,” and the bank’s regime indicators suggest a “constructive backdrop for Value ahead.”
Bank of America also highlighted rising dispersion across stocks and growing active share among portfolio managers as signals that “it’s a good time to be different,” noting that roughly 60% of stocks have outperformed the broader index so far this year.