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Biggest active fund inflows in years, as bullish indicator climbs higher: BAML
July 21, 2017 / 10:32 AM / 5 months ago

Biggest active fund inflows in years, as bullish indicator climbs higher: BAML

LONDON (Reuters) - Active fund managers enjoyed a slight respite from the relentless rise of passive index-tracking this week, with the biggest inflow to active equity funds in two and a half years, Bank of America Merrill Lynch strategists found on Friday.

The company logo of the Bank of America and Merrill Lynch is displayed at its office in Hong Kong March 8, 2013. REUTERS/Bobby Yip

Some $3.5 billion flowed into mutual funds while investors placed $6.4 billion into ETFs, together the biggest equity inflows in five weeks as risk-on sentiment prevailed, BAML’s weekly report on investor flows tracked by EPFR showed.

Assets under management in long-only funds were still down 1.2 percent year-to-date, against a 9.7 percent increase in assets managed by ETFs.

As earnings season kicked off in Europe, the region’s equities drew their largest inflows in ten weeks, with $3.0 billion, while U.S. stocks sank deeper into relative unpopularity with their fifth straight week of outflows.

Some $24 billion has flowed out of the world’s biggest equity market over the past three months while $19 billion poured into European stocks and $20 billion into emerging market equities as investors were drawn in by a more attractive rates and earnings outlook, and lower valuations compared to U.S. stocks.

Bonds meanwhile saw their 18th straight week of inflows, and high-yield bonds had their biggest inflows in three months as investors searched for yield.

Investment grade bond funds drew inflows for the 30th straight week, with $7.5 billion, while $1.8 billion flowed into high-yield bonds and emerging market debt funds had their 25th straight week of inflows.

In a week which saw world stocks hit new record highs, BAML’s “bull & bear indicator” of risk sentiment escalated to 7.4 from 7.0, nearing the ‘extreme bullish’ level and not far from a signal to sell, strategists said.

But as calls for a correction multiply, they recommended investors hang on a little longer.

“Stay long risk assets until sentiment reaches euphoric territory of 8.0,” they added.

Strategists drummed on their theme of global stock markets’ Icarus-like flight higher culminating in a ‘Humpty-Dumpty’ fall in risk assets in the autumn.

They added the caveat that an earlier stumble could be precipitated if the collapse of the U.S. administration’s healthcare bill had a ripple effect on the wider economy.

“In the absence of immediate negative impact on small business employment following Obamacare repeal/replace failure and/or lurch toward tech-negative Occupy Silicon Valley policies, we think big fall in markets an autumn not summer event,” they said.

Reporting by Helen Reid

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