BANK OF AMERICA: Hedge funds are more defensively positioned than ever as they brace for coronavirus fallout

• Hedge funds posted an "extreme rotation" out of cyclical stocks after the end of the first quarter as managers brace for a potential market downturn, Bank of America analysts wrote Wednesday.
• Such funds are now the most defensively positioned they've been since the bank began tracking the data in 2011.
• Long-only funds made similar moves to pad against a downturn, dumping nearly 80 million of energy company shares in the second quarter so far following oil's late April plunge.
• Visit the Business Insider homepage for more stories.

As stock indexes rally and investor sentiments improve, hedge funds are battening down the hatches for continued coronavirus turmoil.

Such funds made an "extreme rotation" out of cyclical stocks at the start of the second quarter, Bank of America said in a Wednesday note. Managers are now the most defensively positioned they've been since the bank began tracking the data in 2011.

Hedge funds' concentrations in the health care and utility sectors now sit two standard deviations from their long-term average, the team led by Savita Subramanian wrote. Long-only cyclical versus defensive exposure sank to its lowest point in 12 months, and positions in energy, discretionary, and materials companies neared record lows.

Facebook, Equifax, and Charles Schwab are some of the most heavily weighted hedge fund picks compared to the S&P 500 index, the team said.

Read more: A fund manager trouncing 90% of his rivals shared with us 5 trades he's making to stay ahead — including a big bet on Disney after it was crushed in the pandemic sell-off

The funds' rotation joins a broader move away from the energy sector. Recent weeks saw oil prices dive below zero for the first time ever and drag on a wide range of energy companies. While the commodity has since posted a strong rebound, the connected sector hasn't enjoyed such healthy gains. Funds tracked by Bank of America sold nearly 80 million shares in energy companies since the first quarter ended, according to the note.

Even as funds reduce concentration in cyclical stocks, investor optimism continues to rise amid economic reopenings. Institutional clients' four-week stock market flows turned positive last week after temporarily sliding to zero, Bank of America said, indicating fresh hopes for a market recovery.

Now read more markets coverage from Markets Insider and Business Insider:

Relief loans are going to areas with pre-existing bank relationships instead of most infected regions, Fed economists find

Wharton professor Jeremy Siegel explains why the bond market's 40-year bull run is doomed

When Wade Pfau isn't writing books or winning awards, he's teaching Ph.D. students the art of retirement income. Here are 4 ways he says investors can reduce risk and thrive financially in the long term.