Institutional investors continued their selloffs last week, leading the way as Bank of America Merrill Lynch clients became net sellers of U.S. equities for the first time in about a month. In spite of all the selling, however, the S&P 500 climbed 3.3% last week, marking its largest weekly gain in almost 10 months, according to BAML.
Institutional investors unloading stock
In a report dated Oct. 13, analyst Jill Carey Hall and her team said last week institutional clients sold $1.7 billion worth of U.S. stocks. Institutional investors have unloaded U.S. stocks for the last six weeks in a row, and BAML reports that institutions are still the biggest net seller so far year to date. According to Hall, one problem they are facing is outflows from active funds.
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She also reports that hedge funds and private sellers were also net sellers last week, adding that hedge funds have been alternating between buying and selling in recent. However, she also said that last week marked the first of selling by private clients in eight weeks.
Financials, Healthcare lead in sales
The BAML team also reports that sales spanned all three sizes, but they only solid stocks in seven of the ten sectors last week. Financials and Healthcare led the way. The only sectors that saw net buying last week were exchange-traded funds and Consumer Discretionary, Telecom, and Energy equities.
They said the bearish trend on the Financials, Industrials, and Materials segments continued last week, which was the fifth week in a row of net selling. These three segments also have the longest track record of net selling currently.
Energy still has the longest net buying record as last week was the seventh in a row. The BAML analysts cite oil prices’ stabilization and rebound. They also note that private clients’ inflows to the sector have been the main driver to that sector. However, last week institutional investors drove inflows to Energy while private clients dumped Energy stocks for the first time in nearly two months.
According to BAML, concerns about China and global growth and continued uncertainty about whether the U.S. Federal Reserve will tighten its policies this year continue to coincide with outflows.
Pension funds buying U.S. stocks
The analysts also report that pension funds have returned to buying U.S. stocks. They said only exchange-traded funds and the Telecom sector saw net buying across institutions, hedge funds and private clients. They said all three groups clocked net sales in the Financials, Utilities, Industrials, and Materials sectors. BAML said all three groups were net sellers across all three sizes as well.
Looking at pension funds, the firm reported that after buying U.S. stocks in 10 of the last 11 weeks, they again became buyers of stocks. The Tech and Healthcare sectors and exchange-traded funds led the net buying among pension funds. So far year to date, pension funds’ buying of U.S. stocks is at its highest level since 2009—an interesting observation as this earnings season has brought many comparisons with the second half of 2009.
Graphs/ charts in this article are courtesy BAML.