The billionaire investors just reported their second-quarter holdings through the required SEC 13(f) filings. The “smart money” has moved to a more diversified allocation.

We showed you in May that the billionaires owned consumer discretionary stocks by a large margin over technology, which was their next-largest sector holding. Financials were the third-largest holding.

The second quarter has seen a reversion by billionaires to a more diversified portfolio. Consumer discretionary stocks are still the largest sector holding, but they only account for 22.49% of the holdings. That’s a drop of more than 15% from the first quarter.

Reversion by billionaires to a more diversified portfolio
Technology stocks are still the second-largest holding of the billionaires at 12.93%, a small increase from the previous quarter.

The big surprise here is the jump in the holdings of more value-oriented stocks, including industrials, energy stocks, and basic materials.

Also of interest is the relatively large drop in the holdings in the interest-sensitive sectors that include utilities and real estate. We’ll address these in a moment.

Here’s a current look at the entire asset allocation of the billionaires.

Asset allocation of the billionaires
With the largest sector holding at only 22% of the overall portfolio, this type of diversification would be equally as good for individual investors as it is for the billionaires.

Let’s take a look at these sectors from the TradeStops perspective …

We use the SPDRs Select Sector ETFs to track the sectors. The top three sector holdings of the billionaires — consumer discretionary, technology, and financials — are all in the Stock State Indicator (SSI) Green Zone.

Top three sector holdings of the billionaires in the green zones
Six of the top seven sector holdings of the billionaires are in the SSI Green Zone, with only the industrial sector currently in the SSI Red Zone.

It’s not surprising to see that the billionaires invested more evenly across the economic sectors. The economy is strong with last quarter’s 4.1% GDP increase evidence of this growth. Sure, there are potential threats — trade wars, dollar strength, inflation — but the economy and the markets are ignoring these as they move to new highs.

Three months ago, only four of the 10 sector ETFs were in the SSI Green Zone, but as the markets have improved, two additional ETFs have triggered SSI Entry signals. And we’re not far away from one or two others also turning green.

The strength of the economy is also lending itself to our thesis that value stocks could be getting ready to outperform growth stocks.

Three of the four sectors that the billionaires increased by double digits — basic materials, industrials, and consumer staples — can all be considered as value stocks. Even the energy sector has a large number of value stocks.

We’ll continue to examine some of the individual billionaires’ trades in the coming weeks. For now, our takeaway is that the billionaires are diversifying across several sectors and there are opportunities developing in some of the value-oriented sectors.

 

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Richard Smith, PhD
CEO & Founder, TradeSmith