Enthusiasm For Small-Cap Stocks Wearing Thin: BofAML

Enthusiasm For Small-Cap Stocks Wearing Thin: BofAML

Small-cap stocks have witnessed record inflows since late 2014, though they are finally beginning to see flows reverse course with outflows most weeks since mid-May, notes BofAML.

Jilly Carey Hall and team at Bank of America Merrill Lynch published a research report after tracking BofAML equity client flows into U.S. stocks between June 8 and June 12.

Small-cap stocks: Clients bought in all three size segments

The analysts note BofAML clients were net buyers of U.S. stocks last week for the fourth consecutive week in the amount of $206 million. They point out that institutional clients were net buyers for the third consecutive week, while a tick-up in buybacks by corporate clients was also a big contributor to last week’s positive flows.

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Hall and colleagues note that year-to-date, BofAML clients have been net buyers of ETFs plus single stocks in seven of the ten sectors, led by Tech and Industrials. Hedge funds and institutional clients were net sellers of US stocks YTD, while private clients were buyers.

Clients bought across three segments Small-Cap Stocks

Focusing on weekly flows (between June 8th and June 12th), the analysts point out that net buying was led by Financials and Energy. They note net sales of ETFs and net buying of Tech were the two biggest shifts from four-week average trends. Interestingly, the analysts point out that no sector has witnessed more than two consecutive weeks of net buying, while Health Care is suffering through the longest selling streak at five consecutive weeks:

Flows during last week Small-Cap Stocks

Trends by sector

Focusing on sectoral flows, the analysts point out that despite better U.S. data and increased conviction that the Fed will raise rates in September, Telecom was the only sector which witnessed inflows from hedge funds, private clients, and institutional clients alike last week. Moreover, net buying has been witnessed in Financials since late March 2015, Materials since early May 2015, ETFs since late May 2015, Energy and Utilities since early June 2015:

Flow by sectors Small-Cap Stocks

Slicing the data by client type, Hall and colleagues point out that hedge funds and private clients were net sellers of U.S. stocks on a four-week average basis, while institutional clients were net buyers of U.S. equities.

Flows by client type Small-Cap Stocks

Analyzing the data by market cap, Hall et al. point out that BofAML clients were net buyers of large, mid and small-cap stocks on a four-week average basis. However, they note small-cap stocks are the only size segment which witnessed net sales in 2014, but like the other size segments, small caps are seeing inflows YTD:

Flows by market cap Small-Cap Stocks

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