Investment advisors are shifting focus away from large-cap stocks, favoring smaller, highly rated stocks with lower floats. Using our BMAP app on the Bloomberg Terminal {APPS BMAP<GO>} the analysis reveals how advisor preferences align with market dynamics and analyst ratings.

S3’s BMAP app features a field that indicates the percentage of each stock held by various investor types, with investment advisors holding the largest proportion.

We conducted a regression analysis to identify which types of stocks are favored by these advisors.

Based on a single data point, we found that investment advisors are more overweight in stocks weighted by float rather than by market capitalization. For example, Walmart (WMT), which has only 53% of its shares floated, appears as the least owned stock when ownership is measured as a percentage of market capitalization rather than float.

We found that company size influences whether stocks are considered overweight or underweight. Specifically, investment advisors tend to be underweighted in stocks with larger floats and larger market capitalizations, while they are overweight in stocks with smaller market capitalizations.

This indicates that investment advisors are resisting the "Magnificent 7" concept by diversifying their holdings rather than concentrating them in a few large-cap stocks.

Additionally, there is a correlation with the average analyst ratings, suggesting that advisors either follow analyst recommendations or align with their methodology. Notably, the stock with the highest increase was the one receiving the most positive analyst ratings.

Although there is no significant relationship between year-to-date (YTD) returns and ownership levels, a strong sector effect is evident. The energy sector, which is the least owned, has also posted the smallest gains for the year.

Conversely, the financial, technology, and communications sectors, which are overweighted, have experienced the highest increases.

Currently, factors such as volatility, dividend yield, and YTD return do not appear to influence ownership preferences. This contrasts with earlier trends when investors were notably overweight in NVIDIA (NVDA).

There is also a discernible preference for stocks with lower price-to-earnings (P/E) ratios, aligning with the broader trend away from very large-cap stocks.

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