The most popular stocks for active mutual fund managers

  • By Daren Fonda,
  • Barron's
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Alphabet (GOOGL), Microsoft (MSFT), and Visa (V) are some of the most popular stocks with fund managers these days, while Apple (AAPL), Nestle (NSRGY), and Exxon Mobil (XOM) appear to be losing the popularity contest.

The stocks show up in UBS ’s latest survey of “crowded trades” by active managers. UBS looks at stocks with the most underweight and overweight positions held by active managers, relative to their funds’ benchmarks. It’s a window into stocks with the most favorable sentiment among fund managers, known as the “buy side,” along with the stocks that they expect to underperform.

The list ranks Visa as the most overweight stock among global fund managers. Alibaba Group (BABA) comes next, followed by Alphabet, Microsoft, and Mastercard (MA).

Apple, meanwhile, tops the list of underweight stocks. It’s followed by Nestle, Exxon Mobil, Tencent Holdings (TCEHY), and Taiwan Semiconductor Manufacturing (TSM).

A stock’s popularity may be a contrarian indicator. The more crowded a trade, the more likely a stock could tumble as a herd of portfolio managers sell their positions. Popular stocks tend to get bid up in price, making valuations less attractive. UBS has been warning of that possibility for years. “Once these trades reach their critical value, or an exogenous shock occurs, we expect a sharp price reversal as investors unwind their exposure in tandem,” the firm said in a report on crowded trades back in 2016.

UBS surveys small- and mid-cap managers too, and it’s interesting to see that a couple of heavily shorted stocks show up on their popularity screens. Two names that stand out are Carvana (CVNA) and LendingTree (TREE). About 56% of Carvana’s outstanding shares are held short and 26% of LendingTree’s shares are held by short-sellers (who bet that the stock prices will go down).

Fund managers who took the other side of those trades, however, have done quite well. Carvana is ahead 98% this year while LendingTree has gained 66%. Popularity, it would appear, is in the eye of the beholder.

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