BofA Warns Of "Tech Mania" Risk: Sees Highest Tech Inflows Since Dot Com Bubble

Tyler Durden's picture

As one would expect, in a week that saw the biggest one-day drop in US equities since last September, retail investors bailed on US stocks resulting in what BofA dubbed "risk-off flows" as $1.6 billion was pulled from global equities - with active managers once again getting the short end of the stick, with $4.3 billion in outflows from mutual funds, largest in 7 weeks while another $2.7 billion flowed  into ETFs - offset by $9.7 billion inflows to bonds and $0.2 billion to gold.

That said, the bifurcation in equity flows has continued as European equity funds continued to see inflows for an 8th consecutive week (a $1.1 billion inflow) although the pace has slowed from a record level a week ago. The monthly data reveal that the asset class recorded the highest inflow since Dec'15 and the second positive in a row.

The flows reflect big asset allocation preference for EU disclosed previously in the Fund Managers Survey, shown below; rotation into EU from US ($8.9bn outflow) continues

As for the US, it could get worse: BofA's Mike Hartnett notes that DC disruption presents a new risk as the Washington political malaise causes capital flight from US. YTD foreigners have bought $71.4bn US stocks, corporate bonds & government bonds. The question now is whether they will sell.

Looking across other asset classes, bonds saw solid inflows in the past week, with IG & HY inflows biggest in 6 weeks; YTD inflows to bonds of $154bn outpacing inflows to stocks of $125bn

Meanwhile, until Thursday's Brazilian crash, money continued to flow into emerging markets, with EM seeing both debt ($1.6bn) & equity ($3.9bn) inflows this week; In fact, piggybacking on Gundlach's emerging market enthusiasm, EMs are the YTD flow winner and YTD return winner (stocks +18%, bonds +7%) as the weaker dollar, lower yields overwhelm China credit fears. 

Some other fund flows observations:

  • Flow leadership YTD: 1. bank loans (annualizing inflows of 49% of AUM) 2. EM debt (26%) 3. tech (25%) 4. financials (20% - Chart 2)

  • Tech mania: as shown recently when we broke down the latest 13F filing, tech inflows are annualizing at the strongest pace in 15 years, or since the dot com bubble; the risk is that the longer it takes economy & yields to pick-up, the greater risk of tech mania note Nasdaq Internet index (QNET) annualizing 75% gain YTD

Meanwhile, the active vs passive decoupling noted above continued: passive equity inflows this week ($2.7bn) vs active outflows ($4.3bn); YTD passive = $178bn inflows, active = $52bn outflows; past 10 years, $2.2tn into passive and $2.2tn outflows from active

And a detailed breakdown of asset class flows :

  • Bonds: inflows 20 of the last 21 weeks ($9.7bn)
  • Equities: $1.6bn outflows ($2.7bn into ETFs, $4.3bn outflows from mutual funds, largest in 7 weeks)
  • Precious metals: inflows 5 of past 6 weeks ($0.2bn)

Equity Flows

  • US: $8.9bn outflows, 3rd straight week
  • EM: 9 straight weeks of inflows, largest in 39 weeks ($3.9bn)
  • Japan: outflows 4 of past 6 weeks ($1.5bn)
  • Europe: 8 straight weeks of inflows ($1.1bn)

By style:

  • US value fund outflows 8 of past 9 weeks ($2.0bn), outflows from US small caps ($1.5bn)

By sector:

  • inflows to tech ($1.0bn, 11 straight weeks),
  • healthcare ($0.1bn), infrastructure ($40mm),
  • energy ($0.1bn); outflows from financials ($1.0bn),
  • consumer ($0.1bn), utilities ($0.1bn),
  • materials ($0.1bn),
  • real estate ($1.5bn, largest in 4 years)

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Deplorable's picture

The sockpuppets are screaming Buy, Buy, Buy.....

Muad'Grumps's picture

They are. When I peruse the typical forums like Whitecoat, Bogleheads they are thoghtlessly plowing right into these passive index ETFs. It's really amazing being that these people have had the fortune  of seeing two bubbles already. You'd figure they wise up and but the inverse ETFs instead or buy puts.

meta-trader's picture

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A. Boaty's picture

Party like it's 1999!

E.F. Mutton's picture

I've developed a new app that puts Bow Ties and Top Hats on pics of your morning dump

Who'll start the bidding...?

DavidC's picture

Gosh, there's a surprise, I would never have guessed it.

DavidC

(sarc off)

GestaltNine's picture

What does Bank of BTFD say?

Rebel yell's picture

And what does Dennis Gartman say?

Rebel yell's picture

Wall Street has priced in the singularity saving humanity and creating a Goldie locks economy. We can just listen to music and read while the technology does everything. That will be excellent, like an Orwellian renaissance.

ThanksIwillHaveAnother's picture

Elon even admitted tech is way overvalued.

John Law Lives's picture

"...the risk is that the longer it takes economy & yields to pick-up..."

What?  How much monetary stimulus (i.e. trillions of federal deficit spending and CB intervention) took place over the last 8 years whilst waiting for the economy to pick up.  Obumble didn't see growth in real GDP of at least 3 percent during his time as POTUS.

Yes, I'm sure the economy will skyrocket any day now...  

FUBAR_to_Hell

Justin Case's picture

The banks have bought over a trillion dollars of assets to keep the SS Minow from sinking into the abyss. There is no recovery b/c nothing has changed. They are applying the same fix that started this whole conundrum. All they are doing is extend and pretend, until the ship goes down.

shizzledizzle's picture

No shit, the fact that people and institutions piled in to SNAP shows that no one is evaluating anything.

Bam_Man's picture

A speculative mania driven by pure, unadulterated, mindless greed.

And no, it won't end well.