Energy Under Pressure as All Investor Types Took Profits

Institutional investors continued to sell aggressively in September, pushing their year-to-date outflows over $300 billion by Oct. 5. However, hedge funds recorded noteworthy net inflows last month as they allocated capital toward a recovery in the stock market.

Meanwhile, momentum among retail investors slowed as the group recorded net outflows—one of the very few periods of outflows year to date. Despite that slowing momentum and the net inflows among hedge funds, retail investors remain the top net buyers year to date, and hedge funds are marginally negative.

Taking profits on energy

The data from S&P Global Market Intelligence revealed that energy continued to widen its outperformance over other sectors in September. However, retail investors largely took profits in the sector, becoming net sellers of energy last month in a reversal from previous periods when the group bought into the sector's strength.

Institutional investors also took profits in energy, remaining net sellers of the sector for another month. Hedge funds have alternated between buying and selling the sector in recent months but were net sellers in September.

While energy continued to outperform significantly compared to the other sectors, S&P Global Market Intelligence warned that all this selling from all three major investor groups could start to pressure the sector's performance.

Sector-by-sector performance

Year to date, energy is the only sector in the green, returning 47.2%. Even utilities is in the red, down 6%, followed by healthcare's 10% decline. Consumer staples is off by 11.2%, while industrials has declined by 17%.

Financials, which typically benefits from rising interest rates, is down 17.9%. The worst-performing categories are information technology (-27.2%), consumer discretionary (-28.1%), real estate (-29.4%), and communication services (-36.3%).

Overall, institutional investors were marginal net buyers of utilities and basic materials and flat on financials and consumer services. They were marginal net sellers of all the other sectors, with industrials being the worst at -0.4%.

Sector flows by investor type

S&P Global Market Intelligence observed net purchases among hedge funds in some of the largest sectors in their portfolios. They were net buyers of healthcare, consumer goods and technology, boosting their positions in healthcare by 1.4% and consumer goods by 0.6%.

However, hedge funds added the most dollars to their positions in technology, even though the sector was in third place by the percentage of increase. Funds were significant net sellers of utilities (-1.6%), real estate (-1.9%), basic materials (-2.2%), and industrials (-2.4%).

Retail investors are still the largest net buyers year to date, although September brought the most bearish activity among the group so far this year. Retail investors were net sellers of eight out of the 10 sectors, with the most aggressive sales in industrials, where they reduced their positions by 1.1%.

The group was marginal net buyers on consumer services and net neutral on consumer goods, energy, technology and healthcare.