"Bifurcated client flows during last week's sell-off"
Highlights - Jill Carey Hall, Equity & Quant Strategist and Team, BofA Securities discuss this past week's goings on in markets which saw extreme volatility in markets, detailing where the flows originated and why.
Overall Market Activity
- Net Selling of US Equities: BofA Securities clients were net sellers of US equities, with outflows amounting to $2.6 billion last week, marking the fourth consecutive week of net selling. However, the outflows were smaller compared to the previous three weeks.
- Sector Divergence: There was a notable divergence in sector flows. Technology saw its third straight week of outflows, while Communication Services experienced its 18th consecutive week of inflows. Six sectors, including Consumer Discretionary, Health Care, and Financials, saw inflows last week.
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Client Type Activity
- Hedge Funds and Institutional Clients: Hedge funds and institutional clients were net sellers. Hedge funds sold equities for the first time in two weeks, and institutional clients continued their selling streak for the fourth consecutive week.
- Private Clients: Private clients shifted to net buyers after being net sellers the previous week.
- Corporate Buybacks: Corporate client buybacks remained robust, continuing to track above typical seasonal levels for the last 21 weeks.
Market Cap and ETF Activity
- Large Caps: Large-cap stocks saw inflows for the second consecutive week.
- Small/Mid Caps: Clients bought small and mid-cap stocks for the first time in a month.
- Equity ETFs: Clients sold equity ETFs for the first time in nine weeks, with significant outflows in Financials ETFs and inflows in Tech ETFs. Value, Mid Cap, and Broad Market ETFs saw inflows, while Large/Small and Growth/Blend ETFs experienced outflows.
Sector-Specific Trends
- Industrials and Energy: These sectors have been driving the downtrend in third-quarter estimates, with Industrials experiencing the longest recent selling streak (four weeks).
- Consumer Discretionary, Health Care, and Financials: These sectors saw inflows for the third straight week (Consumer Discretionary and Health Care) and the first time in four weeks (Financials).
ETFs and Style Preferences
- Commodity and Fixed Income ETFs: Clients bought Commodity and Fixed Income ETFs while selling Equity ETFs.
- Style Preferences: There was a preference for Value ETFs, with clients selling Blend and Growth ETFs.
Rolling Averages and Historical Context
- Four-Week Moving Average: The rolling four-week average of total net buys of US equities has been negative since March.
- Historical Trends: Institutional clients have been the biggest net sellers post-crisis and in the past 12 months.
Visual Data Highlights
- Exhibit 3: Shows that buybacks by corporate clients as a percentage of S&P 500 market cap are nearing 2019 highs.
- Exhibit 4: Illustrates the rolling four-week average of BofA client total net buys of US equities.
- Exhibit 5: Provides cumulative net buying (selling) data by sector, client type, size segment, and overall from 2008 to 2024.
These insights provide a comprehensive view of the recent trends in equity client flows, highlighting the bifurcated behavior among different client types and sectors, as well as the ongoing strength in corporate buybacks.
Citations:
[1] BofA_BofA-Securities-Equity-Client-Flow-Trends-Bifurcated-client-flows-during-last-week-s-sell-off_20240806.pdf
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