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Fund managers falling out of love with CSL but buying these blue-chip instead

Some of our market darlings are starting to lose favour with fund managers as they shift their preference to other parts of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

The was the findings from JP Morgan’s latest monthly Fund Manager Radar report for October, which looks at stocks that institutional investors are buying and selling compared to the previous month.

The broker has created what it calls a “Love Index” to measure where the collective ardour is gathering.

Feeling the love

What fund managers, or fundies, are holding can often sway sentiment towards a stock – particularly at a time like this where the outlook for the market is so uncertain.

“Since the inception of the FMR, we have attempted to assess the balance of local manager positioning by stock in the form of the ‘Love Index’,” said JP Morgan.

“While the measurement process is blunted by the nature of holding disclosures, the results do provide some insight into stocks that are favoured by managers against those for which there is less clamour.”

CSL losing affection

One notable stock that fund managers appear to be cooling towards is the CSL Limited (ASX: CSL) share price. The broker believes this is primarily because of its over-extended valuation.

It’s perhaps no coincidence that JP Morgan has just downgraded the blood plasma products maker to “neutral” from “overweight”.

The downgrade comes even as CSL provided an upbeat update at the recent Research and Development Briefing. This prompted the broker to increase its earnings per share (EPS) forecast for the company by 3% and 5% for FY20 and FY21, respectively.

But JP Morgan feels all the good news is already in the price with CSL trading around the broker’s price target of $270 per share.

3 stocks catching attention

If you are wondering which ASX large caps have become the focus of affection, there are three noteworthy ones.

These are mining giant BHP Group Ltd (ASX: BHP), energy producer Woodside Petroleum Limited (ASX: WPL) and global packing group AMCOR PLC/IDR UNRESTR (ASX: AMC).

BHP had been underheld in March but has progressively been sort after by fundies as it looks like a value buy given its strong balance sheet and cash flow.

“WPL is in focus given our team’s recent upgrade alongside the stock moving into the well-held group,” said JP Morgan.

“Finally, AMC stands out as a ‘quality value’ stock where our team has a strong positive bottom-up view.”

What’s also notable is that materials stocks (meaning mining) have been gaining traction with fundies. Weighting to this sector increased 16 basis points in October to an average overweight of 45 basis points – the highest since November 2018.

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BrenLau owns shares of BHP Billiton Limited. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Amcor 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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