The new normal sure is strange: with the S&P flirting with all time highs, not to mention staging another dramatic V-shaped comeback from the post-Brexit crash which saw S&P futures trade limit down a week ago, investors keep on selling. According to Lipper data, U.S.-based stock mutual funds, which are held by retail mom-and-pop investors, posted cash withdrawals of $2.8 billion over the weekly period ended Wednesday; this was the 16th consecutive week of outflows.
All stock funds, including ETFs, posted an even wider $6.8 billion outflow last week to mark their biggest withdrawals since early May, while taxable bond funds posted $2.6 billion in outflows after raking in $2.5 billion the prior week. The perpetual question of who is buying remains especially after BofA reported earlier this week that its "smart money" clients sold US stocks for the third consecutive week and in 21 of the past 22 weeks, led by institutional clients' sales.
The money went into low-risk money market funds which attracted $25.1 billion in new cash in the week ended June 29 after Britain voted to leave the European Union data from Thomson Reuters' Lipper service showed on Thursday. In addition commodities and precious metals funds, as well as funds that specialize in safe-haven U.S. Treasuries, attracted their biggest inflows since February.
Lipper research analyst Pat Keon said U.S.-domiciled mutual funds took in $18.9 billion in net new money for the fund-flows week ended Wednesday, but the large net inflow number is almost entirely attributable to money market funds "as investors put money on the sidelines to wait out the uncertainty caused by the Brexit leave vote." Municipal bond funds, also considered low-risk, contributed to the overall inflows with their 39th straight week of gains, at $649 million, Keon said. Taxable bond funds posted withdrawals of $4.1 billion and equity funds had outflows of $2.8 billion, Keon added.
"As would be expected, non-domestic equity funds accounted for the lion’s share of the net outflows at negative $2.5 billion among equity funds while for taxable bond funds investors fled from below investment-grade funds in a risk-off strategy in response to Brexit," Keon said.
As Bank of America's Michael Hartnett adds, Monday was "redemption day" which saw global equity fund redemptions of $9.5 billion. This was the 7th largest day of redemptions in past 10 years.
Harnett also looks at global fund flows, and finds that weekly flows showed the largest global equity outflows ($20.7bn) since Aug’15 (CNY devaluation) and largest European equity outflows ($5.3bn) since Oct’14 (end-QE3).
Still, retail may turn around and come back quickly into equity markets as Wall Street rolled to a third straight day of gains on Thursday. Stock markets have erased the bulk of their losses in the wake of Britain's shock vote a week ago to leave the European Union that had set off the worst two-day decline for Wall Street in 10 months. "We're reversing the 'Brexit' as it becomes evident that it was more of a political vote and decision than an economic decision," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
As it turns out, at least for the US and UK stock markets, all the relentless fearmongering was dead wrong, with the S&P set to surpass 2,100 again while the FTSE 100 Index rose 0.3%, after recovering from its post-Brexit slump to reach its highest level since August on Thursday. It is 6.3 percent higher on the week, on course for its best performance since 2011. So much for the Brexit apocalypse so widely predicted by the "experts."