Fund managers have been snapping up ASX shares with their average cash balance dropping again in May to a more than two-year low.
This is usually a bullish sign for the S&P/ASX 200 Index (Index:^AXJO), although most of the latest buying is focused on defensive ASX stocks, according to JP Morgan.
The broker undertakes a monthly survey of fund managers and it found that the average cash holdings have dropped by a "remarkable" 120 basis points since the peak of the COVID-19 mayhem in March.
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Putting cash to work
Fundies are now holding around 4.8% of their assets in cash as they bought shares in healthcare, telecoms and utilities.
"For the first time since January, Financials benefited from inflows (+15bp), which aligns with our analysis in last month's [survey], in which we pointed to the need to "risk manage" the deep UW [underweight] that the majority of Australian institutions run on the sector," said the broker.
A hot favourite in May
One stock that these professional investors have been buying in May was Sonic Healthcare Limited (ASX: SHL).
The medical diagnostic group is the latest member of JP Morgan's "love index", which ranks the top 30 stocks on the ASX 200 to the number of shares held by fund managers.
Other well-loved stocks include Telstra Corporation Ltd (ASX: TLS), BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), AMCOR PLC/IDR UNRESTR (ASX: AMC), Suncorp Group Ltd (ASX: SUN) and QBE Insurance Group Ltd (ASX: QBE).
Gaming machine maker Aristocrat Leisure Limited (ASX: ALL) is also in the group, although fundies have been taking some profit on the stock two months ago.
Falling out of love
Meanwhile, stocks that dropped into the "neutral" zone in May are National Australia Bank Ltd. (ASX: NAB), Coles Group Ltd (ASX: COL) and A2 Milk Company Ltd (ASX: A2M).
There are also some notable large caps that have fallen into the "unloved" or underheld category. Blood products maker CSL Limited (ASX: CSL) is one, which may not come as a surprise as its share price has been underperforming in recent times after it surged well over $300.
Another is stock market operator ASX Ltd (ASX: ASX) and the two stocks join the likes of Transurban Group (ASX: TCL), Insurance Australia Group Ltd (ASX: IAG) and Woolworths Group Ltd (ASX: WOW).
Foolish takeaway
Getting a sense of what the professionals are doing and thinking can provide clues to where the market is heading, but remember the data is around two months old – and that's a long time in markets.
Some of these positions could have changed since, although I suspect defensive stocks will remain in vogue as the Australia and the world grapples with the risk of a second wave coronavirus outbreak.
