How are fund managers positioning their portfolios in 2022? – The Average Joe
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    How are fund managers positioning their portfolios in 2022?


    May 2, 2022


    Investors have many questions: How much further will the market fall? Is a recession coming? What sectors perform better in such a period? Let’s try to answer these questions…

    Economists are worried that rising interest rates and slowing growth will trigger a recession…

    • Rates: The Fed has charted a course of rising interest rates for the remainder of 2022 — and it’s unlikely a slowing economy will change its path.
    • Growth: Last week, reports showed the U.S. economy shrinking for the first time since COVID’s start.

    Recession performance: Here’s how different sectors performed on average around four past recessions — 1990, 2000-2002, 2007-2009 and 2020 (BBG):

    • Best performers: Consumer Staples (-11.4% from peak to bottom), Health Care (-22.0%) and Energy (-31.6%).
    • Worst performers: Info Tech (-49.3%), Financials (-46.0%) and Industrials (-43.3%).

    The average drop in the S&P 500 was 39.9%. Across the four periods, all sectors were down except once — Consumer Staples in 2000-2002 — reporting a 24.2% gain. Investors really have no sectors to hide during a recession.

    Portfolio positioning: In Barron’s recent bi-annual Big Money survey, 112 institutional managers share their outlook for the next 12 months:

    • Buy or sell: 45% have been net buyers, and only 21% have been net sellers.
    • Asset preference: 59% call equities the most attractive asset class today — 12% for commodities, 8% for gold and only 6% for cash.
    • Sector preference: 34% favor the Energy sector the most, 16% for Tech, 15% for Health Care and 12% for Financials.

    Moving to cash at this stage can also be risky — burdening investors with timing decisions and risking missing out on potential rebounds.

    Looking forward: According to analyst Gary Shilling (BBG Opinion), the S&P 500 could fall much more if a recession unfolds.

    A JPMorgan analyst sees potential for an 8-16% further drop in the S&P 500 — but the market is “so oversold” that “any good news could lead to a vicious bear market rally” (BBG).

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