Finally some good news for active managers. After a year of constant outflows from active funds, last week active funds saw a net gain in investor inflows for the first time since last February.
This data comes from Bank of America Merrill Lynch’s weekly Flow Show report, which details US fund flows.
Over the past 12 months, the shift from active to passive funds by investors has accelerated. Last year, over $250 billion flowed into passive ETFs while more than $100 billion flowed out of active funds. It would appear that this trend is still very much alive as while active funds attracted their first inflows in 12 months last week, the funds flow into ETFs eclipsed that of active funds.
Active Managers See First Inflows For 12 Months
According to BOA, there was a $0.5 billion cash inflow into US equity long only active funds last week, “a sign of rising investor confidence & broadening participation in equity rally.” However, at the same time, US equity ETF inflows amounted to $17.2 billion.
Writing in the weekly report, BOA’s Michael Hartnett notes that these equity fund flows signal a “risk on” mentality among investors, this is despite concerns about the level of the market. Commenting on his so-called “Icarus Trade”, Hartnett says: “we remain
“We remain long risk until Positioning turns dangerously bullish. Our Bull & Bear Indicator of investor sentiment now up to 6.8 (most bullish since Jul’14)…”sell” when indicator reaches euphoric territory of >8.0. Sustained inflows to EM equity, EM debt & HY bond funds and FMS cash falling toward 4.0% over next 6-8 weeks would trigger contrarian “sell” signal.”
Overall, equity fund flows for the week came in at $17.7 billion, the largest in nine weeks. Meanwhile, bonds registered their eighth consecutive week of inflows ($6.7 billion), and precious metals saw inflows of $1.2 billion. In four of the past five weeks, precious metals have registered inflows.
Emerging market equity funds attracted $2.7 billion from investors, the largest inflow in six months and financials saw inflows of $2.3 billion, the largest in three months. US equities attracted the largest equity flows of $8.3 billion, a nine-week record. European equities saw inflows for the fourth week in a row but only just ($73 million).
On the fixed income side, high-yield attracted $1 billion, investment grade attracted $4.1 billion (the eighth week of inflows), and for the 14th consecutive week, bank loan funds reported an inflow of $1 billion.
- Inflows to HY bond funds in 11 of past 12 weeks ($1.0bn)
- Inflows to EM debt funds in 6 of past 7 weeks ($1.3bn)
- 8 straight weeks of IG bond inflows ($4.1bn)
- 14 straight weeks of inflows to bank loan funds ($1.0bn)
- 10 straight weeks of inflows to TIPS funds ($0.5bn)
- $1.2bn outflows from govt/tsy funds (largest in 8 weeks)