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)
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    Author: Travis Esquivel

    Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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