Industrials became ‘trendy’ play as global funds loaded up during July rally: BofA

The Industrial sector was the “flavor of the month” in global equities in July, as long-only funds plowed billions of dollars into the group during a rally, Bank of America said.

Quant strategists at BofA in a research note Tuesday found long-only funds increased their active equity exposure by +$10.1B when global stocks jumped last month. Its analysis of 7,746 funds managing $30T determined that funds pushed up active exposure to Europe mainly through Industrials, at a pace of +$7.8B.

While funds kept their active exposure stable in the U.S., they accelerated $30.3B into Industrials, making that group a “trendy” play as they reduced exposure to Consumer Discretionary (XLY) and Tech (XLK).

“History suggests that the global Industrials sector tends to outperform when the Global Wave is rising, so increased exposure is consistent with the ongoing upturn in the global economy,” Nigel Tupper, a BofA Merrill Lynch quant strategist based in Australia, said. Its proprietary “Global Wave” tool tracks seven economic and market indicators. The MSCI World Index of stocks rose 1.2% last month.

In the U.S., the widely watched Industrial Select Sector SPDR ETF (NYSEARCA:XLI), climbed ~5% in July. The ETF, with nearly ~$20B in assets, outperformed in the S&P 500’s (SP500)(SPY) gain of 1.1% last month, with the benchmark’s advance curbed partially by a selloff in Technology (XLK).

The 10 biggest holdings in the (XLI) ETF account for ~36% of the fund. Here are those stocks and their YTD performances:

• GE (NYSE:GE) – YTD gain: +65%
• Caterpillar (NYSE:CAT) – YTD gain: +16%
• RTX (NYSE:RTX) – YTD gain: +40%
• Uber (NYSE:UBER) – YTD gain: +20%
• Union Pacific (NYSE:UNP) – YTD gain: +0.4%
• Honeywell International – YTD loss: -5.1%
• Lockheed Martin (NYSE:LMT) – YTD gain: +22%
• Eaton (NYSE:ETN) – YTD gain: +23%
• Automatic Data Processing (NASDAQ:ADP) – YTD gain: +13.5%
• Boeing (NYSE:BA) – YTD loss: -34%