By Carolina Mandl

NEW YORK Hedge funds cut their exposure in equities, mainly in healthcare, while adding a bit of small-cap stocks to their portfolios last week, according to a BofA Securities note about its clients flow trends.

The bank said that overall its hedge fund clientele sold more than bought stocks for a second consecutive week, dumping stakes in most sectors, despite a higher concentration on healthcare.

Hedge funds' decision to trim their equity exposure came as all three U.S. indexes notched their fourth consecutive weekly gains. Institutional and retail clients, however, added more stocks to their portfolios.

The healthcare sector has lagged the gain of over 18% of the S&P 500 index. The S&P 500 Health Care index is down 4.39% this year.

Investors, however, have poured $5.8 billion into the healthcare sector this year, according to BofA, more than double the amount seen last year and the third largest inflows of any sector.

Healthcare is seen as a defensive sector because it has constant demand and is somewhat insulated from the economy, so investors have adjusted their positions throughout this year over how long the economy will remain strong.

BofA saw a hedge fund outflow of almost $800 million from mid- and large-cap stocks, while a reduced volume of small caps was added.

(Reporting by Carolina Mandl, in New York; Editing by Marguerita Choy)