Bank of America Merrill Lynch (BAML) said in its Equity Client Flow Trends report that its institutional clients continue to lead net selling, while private clients are still buying the dip. Institutional clients have been selling U.S. stocks for the second consecutive week. They sold $533 million worth of stocks last week.

Hedge Funds Return To Net Buying

BAML 1

After almost three weeks of profit taking, hedge funds have finally returned to net buying last week. They have been cumulative net sellers year-to-date, which was the case last year as well. Meanwhile, private clients remained net buyers for the fifth consecutive week. BAML said inflows from private clients were the largest since January, and sixth largest since it began tracking investor data in 2008. Private clients are the sole net buyers YTD, though inflows are mainly attributable to ETFs. In terms of size segment, large and mid caps witnessed inflows while small caps saw outflows.

BAML 3 Sector

Exchange-traded funds, along with defensive sectors like Staples, Utilities and Telecom, saw the biggest inflows last week. Materials and Financials saw the largest outflows. Last week, Tech sector saw a net buying after record inflows in the prior week. Utilities sector currently has the longest buying trend at four weeks despite fears of increasing interest rates. Historically, Tech has been the biggest beneficiary of increase in real rates. Financials witnessed the longest net selling trend at five consecutive weeks.

BAML Sees Biggest Reversal In Tech & Healthcare

Comparing the Q2 sectoral flows with the first quarter, the biggest reversals were observed in Tech and Healthcare. Tech saw a reversal from net selling to net buying while the trends in Healthcare reversed from net buying to net selling. BAML clients have been net sellers of U.S. stocks on a four-week average basis, a trend observed since February.

BAML 2 Quarterly

Defensive sectors saw a reversal from net buying to net selling last week. Though cyclicals saw net outflows in Q1 as well as Q2, net sales were much lower in the second quarter. BAML expects a shift in market leadership from the U.S.-focused defensive sectors to globally-oriented, inexpensive cyclicals in the second half of this year.

BAML 4 Client type

Mid caps, ETFs and Telecom saw net buying from all three client groups, i.e., institutional clients, hedge funds and private clients of BAML. Private clients have been more inclined towards selling single stocks and buying ETFs until mid-June. But last week, they made record purchases in Financials and Energy.