05 March UK Insights

UK Homebuilders: Momentum Reversal Among UK Equity Managers

272 UK Equity Funds, AUM $185bn

Homebuilders: Negative Momentum

Sentiment reversal in UK Homebuilding sector drives fund weights to 6-year lows.

Long-Term Trends & Short-Term Fund Activity

UK active funds continue to scale back exposure to the Homebuilding sector.  The bullish ownership trend that stretched the best part of the last decade has peaked, reversed, and continues to track a downward course.  Average weights peaked at 2.5% in mid-2021 (ch1), with 80.2% of funds invested (ch3) and a net overweight of +0.89% (ch2).  Since that peak, UK funds started to sell out of the sector, putting pressure on prices which in turn prompted further selling.  This self re-enforcing loop pushed average weights to a 6-year low of 1.4%.

Compared to industry peers, ownership decreases in Homebuilding stocks have been among the worst over the last 6-months, with both absolute and relative measures of exposure moving lower.  The decrease in average weights of -0.4% was only bettered by Electric Utilities and Pharmaceuticals, with UK managers instead increasing weights in Banks, Metals/Minerals and Integrated Oil (ch1).  Be in no doubt this was an active rotation.

Industry Holdings & Sentiment

Homebuilding now sits well down the pecking order of Industry level allocations among UK managers, which are dominated by Integrated Oil, Pharmaceuticals, Commercial Services and Banks (ch1).  Relative to the benchmark SPDRs FTSE All Share ETF however, Homebuilders still represent the 7th largest overweight holding (ch3) and the 5th most overweighted industry group, with the slight majority of UK invested positioned above the benchmark index (ch4)

The Sentiment Grid below shows where current positioning in each UK Industry group sits versus its own history going back to 2011 on a scale of 0-100% (y-axis), against a measure of fund activity for each Industry between 07/31/2022 and 01/31/2023 (x-axis).  Homebuilders sit in a precarious position in the middle-left of the Grid, with strong negative momentum among managers, but positioning levels still in the middle of the range.  We are nowhere close to depressed levels of positioning.

Latest Holdings & Fund Activity

Fund holdings in the Homebuilding industry group are correlated to Style, with UK Value managers allocating 2.11% on average versus Aggressive Growth 0.53%.  Indeed, only 25.9% of the Aggressive Growth funds in our analysis have any exposure to the sector, with the top order dominated by Yield and Value funds.  The larger holders are at the lower-end of the market cap spectrum too, led by the Small/Midcap strategy of S&W Revera UK Dynamic (14.05%) and Blend strategy of L&G Quality Equity Dividend (9.67%).

The last 6-months has seen a number of well known UK managers cut exposure to the Homebuilding industry group, or reduce holdings significantly.  Aviva UK Unconstrained reduced weights by -4.35%, whilst Invesco UK Pension, Liontrust UK Income and Invesco UK Equity were among those to close out.  All Style groups saw exposure fall over the period, with 14.8% of Aggressive Growth funds closing out positions and 10% of Value funds.  

Stock Holdings & Activity

On a stock level, Bellway PLC and Taylor Wimpey PLC are the most widely held companies, owned by 28.7% and 25% of UK managers respectively.  There is some depth to the sector outside of these 2 names, with Persimmon, Redrow and Vistry Group making up the 2nd tier.  There are a number of sizeable holdings shown in the bottom chart that indicate a high degree of conviction in selected stocks from selected UK funds.

The charts below highlight the stocks that have driven allocations lower in the Homebuilding industry group over the last 6-months.  Activity has been heavily skewed to the sell-side, with Persimmon PLC, Barratt Developments PLC and Redrow PLC all seeing ownership levels fall, in addition to the closing out of Countryside Partnerships positions following the Vistry takeover.  

Conclusion and Links

Our UK fund ownership data shows a distinct change in sentiment towards the UK Homebuilding sector.  Since peaking in 2021 after a decade long bull market in ownership, active UK managers have rotated out of key holdings or cut exposure significantly.

The chart to the right shows the time-series of the percentage of UK funds invested in the  key Homebuilding stocks over the last decade.  The industry wide trends are reflected on the single company level, with the majority of the larger holdings seeing a sharp reversal in ownership after peaking in 2021.

But even after the recent rotation, our data shows that Homebuilders are still far from underowned, with the majority of active funds positioned overweight the FTSE All Share benchmark.  With this combination of overweight positioning and negative momentum, investors should tread carefully before trying picking a bottom. 

For more analysis, data or information on active investor positioning in your market, please get in touch with me on steven.holden@copleyfundresearch.com