JPMorgan: Institutions, Hedge Funds Are Using The Rally To Sell To Retail

Tyler Durden's picture

Last week we reported that for the first time since the election, Bank of America's smart money clients were, as a group, selling stocks. As BofA's Jill Carey Hall calculated, after significant buying over the past few weeks, net client sales of $2.1 billion were the largest since June.  However, there was a further nuance, one which has emerged as troubling for those calling for sustained gains in the market.

As the following chart shows, while Private Clients, aka high net worth retail investors, have been on a furious buying spreed unlike anything seen in the past decade (green area chart below), prominent institutional clients have skipped the Trump rally altogether and have been net sellers for the past 12 months, with hedge funds joining in over the last few weeks.

Now, in the latest report by JPM's Nikolaos Panigirtzoglou - who writes the popular weekly "Flows & Liquidity" report - he confirms that the latest "Great Rotation" is one not from bonds into stocks, but from "smart money" to retail investors who have finally joined in the market euphoria, traditionally seen as a topping sign for rallies.

According to JPM, confirming the ongoing troubles plaguing the active investor community (which was slammed most recently by none other than Warren Buffett who in his annual letter praised passive investing, called Jack Bogle a "hero", and lashed out at hedge funds), YTD $83bn has been invested into equity ETFs while $15bn got out of active equity mutual funds. This not only means that the shift away from active funds continues unabated but also that the overall retail flow into equity markets is accelerating. JPM estimates that around $50bn-$100bn was invested into equity funds last year. The $68bninvested into equity funds on net YTD implies an annualized flow of $442bn, almost six times larger than last year’s pace.

Panigirtzoglou adds that while the vast majority of the YTD ETF flows went into large unlevered equity index ETFs, leveraged ETFs amplified the equity market rally also via rebalancing flows “enforced” by daily market moves. This is shown in Figure 2 which shows the daily capital and rebalancing flows by leveraged equity ETFs. While on average leveraged equity ETFs saw a capital outflow YTD, their rebalancing flows were very positive, cumulatively effectively amplifying the equity rally by $7bn since the beginning of the year.

Yet while retail investors have been flooding into ETFs, institutions and hedge funds are doing something very different: they are selling.

Confirming what BofA observed last week, JPM writes that in contrast to retail investors, institutional investors appear to have overall reduced rather than increased their equity exposure YTD. Figure 3 shows the betas of various types of institutional investors by month. While for February the betas are based on the performance of daily reporting hedge fund funds, for previous months we use the more comprehensive monthly hedge fund indices. These monthly performance indices are not yet available for February.

The picture we get from Figure 3 is of only CTAs raising their equity beta in February, reversing the January decline. Adding to the market dynamics, it is likely that as in the case of the Catalyst fund whose forced buying of S&P futures was profiled here two weeks ago, many of the CTAs may be simply caught in a "gamma trap", and are forced to cover synthetic shorts, pushing the S&P higher, in turn forcing even more short covering in a feedback loop that levitates the market to record highs despite ever growing concerns about the implementation of Trump economic policies. 

And, as JPM notes, in contrast to CTAs, equity Long/Short hedge funds, Risk Parity funds, and Balanced Mutual funds appear to have all lowered their beta in February vs. the previous month. Currency hedge funds appear to have increased their beta in February, but this represents the beta to the dollar only, rather than the beta to equities, so this currency hedge fund beta does not reflect equity exposures.

Furthermore, in terms of YTD beta changes, i.e. by comparing the February beta vs the beta of last December, CTAs and Equity Long/Short are flat, while Macro ex CTAs hedge funds, Risk Parity funds and Balanced Mutual funds are down. So the picture we get is of institutional investors either lowering their equity exposure YTD or keeping it unchanged.

JPM's punchline:

"This apparent unwillingness by institutional investors to raise their equity exposures YTD reinforces the argument that it is retail rather than institutional investors that most likely drove this year’s strong inflows into equity ETFs and as a result this year’s equity rally."

There are several implications from these findings.

The first is that with ETFs the dominant vehicle of expressing market sentiment at this moment - almost excluslively by retail investors - it means that certain distinct market "aberations" have become an odd fixture of the market, such as the now daily market ramp in the last 30 minutes of trading, which was on display most recently on Friday when as we discussed, a last minute burst of buying pushed the S&P not only to the green, but sent the Dow Jones to a new all time high just 7 seconds before the close of trading.

We will have more on this in a subsequent post.

The other obvious finding is that the vast majority of professional, active investors and asset managers are taking advantage of the current market rally to sell risk and offload exposure to retail investors, who remain in the driver seat and provide ever higher prices against which to sell. 

How long this unstable equilibrium persists is unclear, and JPM refuses to make any predictions. However, with the fate of the market, now hitting record highs in the longest streak since 1987, it won't take much to spook "mom and pop" daytraders and halt the ETF bid, resulting in the first market selloff under the Trump administration. We wonder what Trump, who has repeatedly pointed to the market's outperformance as an indication of his successful policies, will say once the S&P prints its first correction (or bear market) under his watch.

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GUS100CORRINA's picture
The title below does not surprise me at all! JPMorgan: Institutions And Hedge Funds Are Using The Rally To Sell To Retail Investors
Belrev's picture

Meanwhile Transgender Catlyn Jenner threatens Trump with lawsuit in this AP video

GUS100CORRINA's picture

Jenner ...

What a sad, sad ending to a successful athletic career.

Bruce Jenner became an Olympic icon exactly 39 years ago -

Jul 30, 2015 - Before we were introduced to Caitlyn Jenner, Bruce Jenner captured the hearts of America exactly 39 years ago Thursday by winning the gold medal in the men's decathlon at the 1976 Summer Olympics in Montreal. 

No wonder our young people are so confused and conflicted.

knukles's picture

He's taken a new position writing a column in the WaPo under the pen name "Dr Clarity", hoping to bring the same care and support to transgendereds and kindatransgendereds that Dr Phil has brought to the underprivileged for years.

Oracle of Kypseli's picture

Yea the classic if the shoeshine boy talks about stocks it's time to sell

BigFatUglyBubble's picture

This is no surprise.  Soros has financed Mr. Trump in the past. 

WillyGroper's picture

b4 you're prez is 1 thing.

afterwards, placing your sol in such a position &  after all the soros financed violence done in the name of the prog left is a whole nuther ball game.

didju down vote chindit13 too?

Consuelo's picture



I don't know why anyone would down-vote you for the link.


Simply amazing - but not surprising, how (political) gaps can be $bridged, given the right price and those of like mind...



WillyGroper's picture

dingers = my badge of honor bestowed by those that use the head on their shoulders for nothing more than a hat rack.

if anything, pretty much confirms dt is on the same page for a purple sprang, purple sprang...not to mention the low level pedo arrests & i don't care the number.   gotta hatchet the root.

ThanksIwillHaveAnother's picture

Bruce was on my box of non-gmo Wheaties when I was a kid.  Really looked up to him then.  Not now.

knukles's picture

Hold the fuckin' boat.  Last I heard he was still a he carrying around a package of he junk
"His" skirt.

If he really cared about the trans community, etc., he'd have his junk cut off, placed in a bottle of formaldehyde and auctioned off as a donation to the needy.  But oh no, he likes his pecker more than his political convictions.

CRM114's picture

Same old story - being amazing at one thing does not make you godlike at everything - look at all the racing drivers who've died flying their own aircraft (badly).


..and as for entertainers and political opinions - it's not even funny.

BigFatUglyBubble's picture

DJT said Bruce Jenner could use his hotel ladies room back in April.  This is more distraction.  I bet they are friends....  Macho Man Vs. Jake the Snake... More Matrix News.

Wallstreet is going to make a killing on/during this collapse, and DJT is their stooge-in-chief. 

Winston Churchill's picture


Only a fool would invest at these p/e's.

ebworthen's picture

Yes, bag-holders. 

Nine years of phony-baloney and FED press conferences have anesthetized the retirement crowd enough that they follow the chutes into the slaughterhouse willingly, again!

SuperRay's picture

Retail investors always get fleeced yet always seem to have money when the market tops, to get in just in time to lose again

SuperRay's picture

Retail investors always get fleeced yet always seem to have money when the market tops, to get in just in time to lose again

withnmeans's picture

NO, really!!!!


I have been saying this for quite some time. But Kudos to the big dogs, as long as there are stupid people that want to invest in this Whirling Cesspool of a corrupt Market, I hope they strip them of everything!

Carry on, nothing new here!

Father ¢hristmas's picture

It's a Ponzi scheme.

Got the big boys to get the rally started, then usher in the muppets.

BigFatUglyBubble's picture

Trump followers -> Muppets = Trumppets <<salt peanuts, salt peanuts>>

Father ¢hristmas's picture

"As the following chart shows, while Private Clients, aka high net worth retail investors, have been on a furious buying spreed unlike anything seen in the past decade. Meanwhile, while hedge funds turns sellers several weeks ago..."


Fight Club must've rehired that drunk Tyler who went rogue a while back.

Arnold's picture

There are several commentators and contributors

worthy of the 'I'm Tyler' name tag at the daily conference.


 Tryouts for walk-ons continue, I bet.


CRM114's picture

One born every minute...


This is the big clue to me for the crash - the smart money is getting out.

northern vigor's picture

The taxi drivers and shoe shine boys are jumping in's over.

drstrangelove73's picture

A male nurse who works for me is divorced,shacked up and has car notes on his pickup and his girlfriend's ride-they live in a "real nice mobile home" and he asked me last month if he should be investing in the stock market .
Me: "Is all your stuff paid for?"
Him: "Uh,no..."
Me: "Have you saved the equivalent of six months salary and put it aside?"
Him: "Uh,no..."
Me: "Then no..."

ParticularlyStupidHumanoid's picture

Honestly, that's not very good advice. You should have told him how to convert credit card purchases to cash, through eBay, then how to buy on margin.

zagzigga's picture

Whatever. Been hearing this for over a year and the market keeps going up and up. If the S&P tanks 20% from here, it will still be around where it was last February. 

Vlad the Inhaler's picture

Was looking at the QQQ CoT report, must be the Bank of Switzerland buying.

francis scott falseflag's picture


"Using the rally to sell retail"


It certainly wouldn't be the first time.  Don't you remember the Corn Market in Rome?

ParticularlyStupidHumanoid's picture

Wrong forum. You meant to post that in the "reincarnation discussion" forum.

Davidduke2000's picture

The problem is retail nothing think it is a propaganda to shut them of the best rally, will even double their buying to lose it all shortly.

It has been the same tactic since the market was created, this time it took longer because people were suspicious but with Trump praising the market, he is trapping his people without knowing. 

Get out while you have the chance, let the Swiss bank take the loss. 

drstrangelove73's picture

Trump divested all his equity holdings this summer prior to his final FEC filing.Anyone who voted for him who doesn't know that deserves what he gets

JTimchenko's picture

Have employees of JPM just joined the tin foil hat club? If so, I bid them welcome.

Truth is, however, that the big Wall Street banks and their associated hedge funds might actually be the ones doing what this analyst describes. In fact, it seems very likely that they are using their access to nearly-free "loan" money from the various Fed loan windows to catalyze one last rally for the very purpose of offloading to retail.

In the novel, "The Synod", there is one chapter in which that very thing happens, although on a lesser scale. Here we seem to have a massive manipulation of the entire stock market. Seems time to take refuge in gold. If you read the work of some of the top commentators in the field, it seems likely that even if the stock market drops, gold will soon go ballistic. Read these posts:

Better start stackin', folks, if you haven't yet, and, if you have, then buy a lot more!!!

Iconoclast's picture

With ZIRP/NIRP having a death grip on 'ordinary' investors' returns recently, tens of millions of unsophisticated folk have been desperately searching for yield by cashing in pensions and other investments to "play da markets". When it tanks this time it'll be terminal for hundreds of millions in the USA and Europe.

ParticularlyStupidHumanoid's picture


Grandad Grumps's picture

Lies within Lies. There is no retail market.