van Eyk’s proprietary database of fund manager holdings shows only six managers were overweight value stocks by five per cent or more, compared to the benchmark.
 
This compares with 47 strategies which had a 5 per cent or greater overweight to quality stocks. The average bias towards quality was 8.3 per cent.
 
van Eyk chief executive Mark Thomas said the tilt towards the quality end of the market had been the right strategy since the GFC because the rise in the market had been driven by only a relatively small number of stocks. In fact, 80 per cent of the rise in the ASX200 index for the 12 months to February 2013 was due to just 10 stocks – including the major banks, Telstra and other defensive stocks like Woolworths.
 
“Investors who are still bruised by the bear market have naturally been crowding into stocks that have a history of good yields, strong balance sheets and solid dividends because they have been perceived as a safer exposure to shares,” Mr Thomas said.
 
Mr Thomas said there were two important conclusions to draw from these data. First, investors are still not wholly convinced of the durability of the share market rally or that we are yet in a sustainable bull phase.
 
This is also demonstrated by the US STALSTOX index, which shows the collective view on asset allocation by Wall Street firms. “This shows the allocation to stocks is only about 45 per cent,” he said.

“Remarkably, this is much lower than the 50-55 per cent during the depths of the GFC,” he said.

“This suggests there is still a wall of money waiting on the sidelines.”
 
Secondly, it implies there may be an opportunity being missed by many managers to take a contrarian stance and re-assess some of the cyclical stocks that have underperformed the market because of the strong focus by investors on quality.
 
Mr Thomas noted the ratio of the performance of cyclical stocks to defensives appeared to be at a cyclical low (see chart).

“This four year trend of quality outperforming cyclicals may have reached some sort of historical extreme, one not seen since 2003 when the Y2K bear market bottomed out and cyclical stocks started to outperform the expensive defensives,” Mr Thomas said.

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