Is it time to sell technology? US investors appear to think so as they flee the sector but international investors aren’t so convinced.
Only a week after Bank of America’s chief investment strategist Michael Hartnett noted in a research report that inflows into tech funds are on pace to achieve record 18% AUM growth in 2017, today BoA quant analysts Jill Carey Hall and Savita Subramanian have issued a report claiming that BoA clients have been jumping out of tech stocks.
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US Investors Sell Technology Stocks
BoA’s quant report couldn’t be more different from Hartnett’s Flow Show. According to Hartnett’s Flow Show report, global funds have attracted inflows for eight straight weeks. The latest tally for the week to August 3 was a net inflow of $2.3 billion. However, while global equities have attracted investor attention, US equities have seen seven straight weeks of outflows. The two reports contrast because the quant research focuses exclusively on US client equity flows.
All of the three main investor classes, hedge funds, institutional and private clients, sold US equities for the week to August 8 with net sales picking up to $1.5 billion. These single stock flows eclipsed small net buying of ETFs.
The sell technology theme led the rout. Sales of tech stocks were the biggest since January 2016 and the eighth largest in history (data going back to 2008). Still, even though investors fled tech last week, year-to-date the sector is not the worst performing based on flows. That award goes to consumer discretionary where BoA clients have sold a cumulative $7.5 billion, compared to tech outflows of $6 billion. On the flip side, clients’ purchases of staples and industrials were the largest and fifth-largest, respectively, in the data history.
When you think about this chart is incredible - institutional clients AKA the supposed smart money have been selling the entire rally for the past nine years.
Across all sectors and clients, year-to-date cumulative net buying is a little under $8 billion. Excluding inflows into ETFs, BoA clients have pulled $22 billion from equities so far this year. The four week rolling average buying/selling figures are:
- Hedge funds have been net sellers of US stocks on a 4-week average basis since late July 2017.
- Institutional clients have been net sellers on a 4-week average basis since early Feb 2016.
- Private clients are now net sellers of US equities on a 4-week average basis after having been net buyers since mid-June 2017.
- After a slowdown in June, buyback activity has picked up in July, where 4-week average buybacks are now tracking above year-ago levels
Corporates have been by far the largest buyers of single stocks so far this year (and have in fact been the biggest buyers by a significant margin since data began in 2008). Cumulative net buying of US equities by corporate clients is $22 billion so far in 2017. Financials have dominated buyback flows with 45% of last week’s buybacks and 36% of July’s buybacks within the financials sector. The dollar amount of buybacks year-to-date for financials has already exceeded that of 2016.