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3 things Aussie fund managers are doing that every investor should know about

The losses on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) are worsening as we head into the last hour of trade with the index falling 0.7% as other Asian stock indices nurse big losses on fears of an escalating global trade war.

A study of local fund managers by JP Morgan has thrown up a few surprising findings that could provide a few clues on where the market is heading during these tumultuous times.

But if worries of a painful trade spat were to recede, there’s plenty of fuel in the tank for the market to shoot higher as local fund managers, or fundies as they are affectionately called, are sitting on the most amount of cash since JP Morgan’s Fund Manager Radar (FMR) report started surveying the sector in March 2016.

The volatile geopolitical environment exacerbated by US President Donald Trump has knocked global markets around and forced most fundies to hoard cash in May (when the survey was conducted) on fears of a market meltdown.

What’s interesting is that the top 200 stock benchmark has shot up to a more than decade high since May with a gain of over 3% even with today’s sell-off.

This tells me that there are quite a few institutional investors who have missed out and will need to play catch up once the dust settles on the trade dispute between the world’s two largest economies.

The fear of missing out (FOMO) is arguably stronger among professional investment managers as they are paid bonuses on beating the market and no one wants to front clients to explain why their fund is lagging the market.

The second thing of note from the FMR report is that fundies have been aggressively buying consumer staple stocks like A2 Milk Company Ltd (ASX: A2M), Wesfarmers Ltd (ASX: WES) and Coca-Cola Amatil Ltd (ASX: CCL) in May.

This is consistent with the growing risk aversion as consumer staples tend to have less volatile earnings and are often a place of relative safety when equity markets are being whiplashed.

The buying interest has allowed the sector to strongly outperform the broader market this calendar year, and this stands in sharp contrast to the stock market in the US and emerging markets as their consumer staples sectors have tumbled by around 9% and 7%, respectively.

This indicates to me that the risk-off sentiment is not widely shared.

The last noteworthy thing is JP Morgan’s so-called “Love Index”. It’s nothing to do with the salacious reality TV program with a similar name although it is a popularity contest.

Fundies are in love with energy stocks and that’s not too surprising given how the crude oil price is defying sceptics to trade higher throughout the year. Fundies have manifested their affection by mainly buying Woodside Petroleum Limited (ASX: WPL).

What’s surprising though is that embattled wealth manager AMP Limited (ASX: AMP) is finding friends again after the bruising revelations at the Royal Commission into bad behaviour.

Two more fund managers have added the stock to their top 10 holdings in that month, which moves AMP up seven places above its implied index weight on JP Morgan’s Love Index.

Given what AMP has fessed up to lately, it makes the contestants on Love Island look like church-going angels.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Coca-Cola Amatil Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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