Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
BofA Stunned By Record "Wall Of Money" Inflows To Equities, Has Three Warnings
03-16-2018, 10:05 AM,
BofA Stunned By Record "Wall Of Money" Inflows To Equities, Has Three Warnings
BofA Stunned By Record "Wall Of Money" Inflows To Equities, Has Three Warnings

<p>One week after US stocks <a href="">suffered "massive" outflows </a>despite a net inflow into global equity funds while the S&P jumped, everyone is back in the pool as a "wall of money" returned with a vengeance" this week, driving record inflows into both global and US-focused equity funds as concerns around trade dissipated, while billions more were plowed into tech stocks according to the latest weekly fund flow report from Bank of America.</p>

<p>According to BofA CIO Michael Hartnett, <strong>a record $43.3 billion was put into equities this week as investors shrugged off trade war risks </strong>that had initially sent stocks reeling, even as those very risks returned in the subsequent week and have pressured the S&P lower on four consecutive days.</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/equity%20flows%20bofa%203.16.jpg?itok=YbpZDKI6" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="723d859c-5641-4e57-85ed-cdfc4a9e5619" data-responsive-image-style="inline_images" height="404" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>There was no good news for active investors, however, as more than all of the inflows ($43.9BN, also a record) went to ETFs, with mutual funds suffering another weekly outflow of $0.6 billion). On a YTD basis, a record $131BN has been allocated to ETFs, or 3.6% of AUM, with just $21BN going to "long onlies"</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/etf%20vs%20mutual.jpg?itok=lugLWhDK" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="68e9de73-bbba-45d1-88bd-99b8c07c18e0" data-responsive-image-style="inline_images" height="192" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>Meanwhile, bond funds saw a "more humble" $2.4 billion in inflows.</p>

<p>Looking at recent trends, BofA calculates that equity inflows are outpacing bond inflows for the first time since 2013, <strong>with annualized flows of $717 billion</strong>. Bond funds managed relatively minute inflows of $2.4 billion this week.</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/stocks%20vs%20bonds.jpg?itok=oh1ApEUX" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="a099b130-c1b2-4b64-aa33-eaf80d9e99be" data-responsive-image-style="inline_images" height="226" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>To Hartnett, these <strong>"Flows indicate clients positioned for higher EPS, higher short rates, higher bond yields, lower US dollar.</strong>"</p>

<p>And yet, something odd has emerged: the record inflows are out of step with more muted returns from equities: <strong>"chart-topping inflows not coinciding with headline returns...check out $25tn NYSE index (NYA Index) down YTD." </strong>All major European stock indices are still in the red since the start of 2018, while the S&P 500 is only one that is slightly up.</p>

<p>Looking at a sector breakdown, investors just can't get enough of tech stocks, and another record was broken in the last week <strong>when $2.6 billion went into tech stocks this week, an all time high, putting the excesses of the dot come era to shame. </strong>So far, a total of $9.8 billion has gone into tech funds YTD, making the annualized flow figure a massive $46.5 billion.</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/tech%20flows.jpg?itok=ekeyvt0m" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="857acd4f-b316-47eb-8f63-d34bb8aa27ed" data-responsive-image-style="inline_images" height="293" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>Hot on tech's heels, financials drew in $1.6 billion, and are the second most popular sector after tech, with $7.3 billion of inflows year-to-date. Separately, U.S. large-cap funds, which saw $10.1 billion in redemptions last week, drew in more than double that amount this week, enjoying their fourth highest ever inflows at $22 billion.</p>

<p>But wait, there's more: <strong>there was also a record inflow into US growth ($5.8bn), US small cap ($5.4bn), and US value ($4.1bn) funds.</strong></p>

<p>Meanwhile, European stocks saw modest outflows of $1.3 billion, even as emerging market equities continued to draw in cash ($2.7 billion) and Japanese equity funds enjoyed their 15th straight week of inflows as the popularity of the asset class proved resilient.</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/flows%20by%20segm%2Cenmt.jpg?itok=uprhFyih" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="95f7e0e6-44fb-4a55-b71e-30620638ccef" data-responsive-image-style="inline_images" height="317" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>* * *</p>

<p>Still, despite the return of raging euphoria, BofA had three warnings:</p>

<p>First, despite massive inflows into stocks, BAML’s Bull & Bear index of investor sentiment fell from 6.8 to 6.5 on "accelerating EM debt/ HY corp outflows & placid equity returns."</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/bofa%20bull%20bear%203.16.jpg?itok=ugvYjA-m" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="3f52072b-beca-437d-ae65-d325e60c74ab" data-responsive-image-style="inline_images" height="321" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>Second, the bank also warned that "Credit is creaking", and echoed Bill Blain's comments from this morning, that there is now a "clear negative inflection point in HY flows" while the broader “yield trade” (IG+HY+EM) inflows & returns are peaking", which makes it a headwind for equity return.</p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/credit%20creaking.jpg?itok=Naqq46Z9" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="25c45e5a-bfda-4ba2-a6db-a87aee783de9" data-responsive-image-style="inline_images" height="322" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>To this point, Hartnett also warned that Treasuries funds drew in $0.3 billion in their eighth straight week of inflows, and as such Treasuries & bunds are hinting at a “growth scare” which makes stocks vulnerable.</p>

<p>Third, Hartnett warned that the recent surge in Libor was likely to lead to tighter financial conditions; as we have reported almost daily, short-term borrowing costs have surged in the past weeks to levels last seen in the 2008 global financial crisis, while both LIBOR-OIS and FRA-OIS have exploded to levels suggesting an acute funding crisis is imminent.</p>

<p>And tied to this, should the U.S. dollar spike once the funding crisis finally manifests itself in trades, it could ding tech and emerging market stocks.</p><img src="" height="1" width="1" alt=""/>

Forum Jump:

Users browsing this thread: 1 Guest(s)