The Brexit vote triggered a massive selloff in markets around the world, but interestingly, the selloff observed by Bank of America Merrill Lynch was muted compared to most of the recent selling streak they have seen. The firm recorded inflows in single stocks and mid-cap stocks and outflows in exchange-traded funds.
Brexit-week sales were muted
In a report dated June 28, BAML strategists Jill Carey Hall and Savita Subramanian noted that the S&P 500 plunged 3% last week due to the selloff on Friday due to the Brexit vote. It marked the third week in a row of U.S. stock sales among their firm’s clients.
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BAML clients have sold U.S. stocks in 21 of the last 22 weeks with institutional clients leading the way, they reported. Private clients also unloaded U.S. stocks and have also done so as a group in all but two weeks so far this year. However, hedge funds racked up their third consecutive week of net buying.
In aggregate, BAML clients sold only $628 million, Hall and Subramanian report, which is much less than the $1.5 billion average weekly outflow they’ve recorded since the current sales streak began in late January. They said that overall, selling has faded since peaking in the middle of April.
Why were sales muted around Brexit?
Seeing how much the broader market sold off on Friday and Monday, we might have expected net selling among BAML clients to have been worse. However, Hall and Subramanian said that sales around Brexit could have been subdued because sentiment and positioning had already become very negative before the vote. Further, some clients might have bought stocks in the dive late last week.
They said single stocks recorded inflows with only the Materials, Staples and Energy sectors racking up net sales. BAML clients bought single stocks in cyclical and defensive sectors with the biggest buying coming in Discretionary, Tech and Financials. Those were some of the worst-performing sectors last week, interestingly enough. Utilities and Telecom outperformed last week and recorded inflows as well, although not at as high of levels as the other three sectors.
The BAML team added that although defensive stocks in aggregate recorded large inflows the week before last, last week brought the biggest inflow to cyclicals since the middle of January. The only sector to see cumulative inflows year-to-date is Telecom.
All client types buy mid-caps
BAML also recorded the highest level of inflows in mid-caps last week since February. Hall and Subramanian add that this size segment was the only one which recorded net buying by all three major client groups (hedge funds, institutional clients, private clients).
Telecom was the only sector which all three types bought last week, and no sector saw net sales by all types last week.
Private clients unloaded ETFs and single stocks for the first time since early February, and the BAML team said that for most of the year, this client type has bought ETFs and sold single stocks. Overall, ETFs drove last week’s selling.