Biggest Equity Outflow In Recent History Leads To Fifth Consecutive Outflow From High Yield Funds

Last week was the fifth consecutive week of HY mutual fund outflows, which while smaller than the prior week's $1.4 billion, was still a material $759 million. With that the five consecutive weeks of HY outflows now stand at $4.3 billion, which is the second largest 5 week sequential outflow from HY funds in history, only better compared to the $4.9 billion in August of 2003. With the disappointing end of week performance in stocks last week, we anticipate that next week Lipper/AMG will announce another huge outflow. With this week's HY outflow, YTD flows are now just barely positive at $898 million. Yet the HY action was nothing compared to the unprecedented, if not record, outflow in domestic equities: ICI reports that the week ended May 26 had $13.4 billion in domestic equity outflows: a number the likes of which we don't recall even in the post-Lehman days.

Curiously, even as flows out of all risky assets picked up, money market saw yet another outflow of $11.5 billion, bringing total YTD money market outflows to $414 billion, or -12.9% of total money market assets. Ironically, the only asset class (aside from gold) outperforming this year is the dollar. Instead of keeping capital invested in cash, Americans have shifted nearly half a trillion out of the best performing asset in 2010.

Yet what is once again odd, is that the differential between YTD Money Market outflows and all other risky asset inflows, is now a 2010 high $120 billion. For all those who wonder where the money to buy 2 million iPads immediately after launch comes from, here is your answer. Americans are moving capital away from what they deem (incorrectly) is an unsafe asset class, and instead of putting it into riskier assets, they are spending it. One can only wonder what happens to already weakening retail sales, once the temptation to reallocate capital back to money markets rears its ugly head.