One recurring question over the past few weeks has been "who is buying" stocks in a world in which not only the smart money, but everyone else too is selling. The latest Lipper data will not provide the answer because as BofA reports, in the latest week there was another $7.4bn in outflows (the 5th straight week) driven by $4.8bn in mutual fund outflows and $2.7bn ETF outflows, leading to a $44bn equity exodus past 5 weeks, which as Michael Hartnett points out is the "largest redemption period since Aug’11", or when the US downgrade sent US stocks into a bear market tailspin.
Digging into equity flows we find the following:
- Europe: $3.9bn outflows (14 straight weeks = longest streak since Feb’08)
- EM: $2.3bn outflows (largest in 16 weeks)
- Japan: ekes out $88mn inflows (ends 8 straight weeks of outflows)
- US: $2.2bn outflows (outflows in 4 of past 5 weeks)
By sector, 12 straight weeks of REITs inflows ($0.8bn); 4 straight weeks of tech outflows ($0.2bn); first outflows from financials in 4 weeks ($0.4bn)
Some other fund flow findings:
- Bonds: $3.5bn inflows (inflows in 10 of past 11 weeks)
- Precious metals: $1.0bn inflows (inflows in 17 of past 18 weeks)
- Money-markets: $10.9bn inflows (largest in 13 weeks)
Michael Hartnett summarizes the longer term flow trends: bonds & gold over stocks, IG over HY, TIPS & munis over Treasuries; Big $2.3bn EM equity outflow (largest in 16 weeks); accelerating outflows from Europe; 4th consecutive week of redemptions from tech funds, 12th week of inflows to REITs; Risk-off $10.9bn inflows to money market fund.
Trend from active to passive continues apace ($1.2tn to equity ETFs, $0.9tn from mutual funds since 2007 – Chart 1)
BofAML private client allocations to bond & equity ETF’s up from 3% of AUM in 2009 to 9% today
In conclusion, here is Michael Hartnett's take on markets whilch “look” better than they “feel”
YTD returns: stocks 1%, bonds 7%, commodities 11%, US dollar -5%
YTD winners: oil, gold, Brazil, Russia, Canada (weak $ plays) & JGBs (deflation play)
YTD losers: US dollar & Italian & Chinese banks (despite ECB & PBoC credit stimuli)
Trading ranges set & holding: SPX 1850-2100; GT5 1.2-1.8%, VIX 12-20, DXY 92-100
But cross-asset price action deflationary: JGB’s, German bunds, Amazon, US utilities, US staples all at all-time highs…while key cyclical indices struggling: SOX, TRAN, DAX, OMX, NKY
Best tactical bull catalyst = policy success = new highs in High Yield (H0A0, HW00) …rotation to stocks…best played via oversold Europe/China banks & US tech Best tactical bear catalyst = policy failure = global PMI’s <50 & -ve EPS growth follows ECB/PBoC credit & Fed “weak dollar” stimuli…best played via bonds & volatility as global yields plunge toward zero.
BofA's summary: "We stay cautious: Positioning = “grind higher”; Policy & Profits = “summer of shocks”.