vrijdag 19 mei 2017

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

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....

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