Finally some good news for active managers. After one year of consecutive outflows, last week saw the first inflows into long-only equity mutual funds going back to last February, as according to BofA there finally was a $0.5 billion cash inflow, “a sign of rising investor confidence & broadening participation in equity rally.” However, to put this number in context, at the same time inflows to ETFs amounted to $17.2 billion, some 35 time more.

BofA’s Michael Hartnett summarizes the latest fund flows in two words: “Risk-on.”

The details: largest equity inflows in 9 weeks ($17.7bn), 8th consecutive week of bond inflows ($6.7bn), precious metals inflows in 4 of past 5 weeks ($1.2bn), largest EM equity fund inflows in 6 months ($2.7bn); largest financials inflows in 3 months ($2.3bn); 14 straight weeks of inflows to bank loan funds; inflows in 11 of past 12 weeks to HY bond funds. However, European equity fund flows remain lackluster.

Looking at credit, BofA notes “IG dissonance” with chunky $37bn IG bond fund inflows past 4 months even though US IG bonds are down 3% over that period. Harnett warns that further IG underperformance
could lead to bout of IG bond redemptions

According to BofA’s proprietary fund flow indicator, private clients are also in reflation mode with the past 4 weeks have seen big buyers of credit (HY, bank loans, IG, EM debt) and inflation-plays (financials, materials, precious metals) at the expense of defensives (low-vol, staples, utilities) and yield-plays (dividend-income, REITs, munis)

Going back to Hartnett’s favorite topic, the so-called “Icarus Trade” profiled previously, he says “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.”

Finally, some more fund flow details broken down by asset class:

Asset Class Flows

• Equities: 7 straight weeks of inflows (big $17.7bn) ($17.2bn ETF inflows and $0.5bn mutual fund inflows) (first weekly mutual fund inflows in 12 months!)
• Bonds: 8 straight weeks of inflows ($6.7bn)
• Precious metals: $1.2bn inflows (inflows in 4 of past 5 weeks)
• Money-markets: $11.2 outflows

Fixed Income Flows

• 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)

Equity Flows

• EM: largest EM equity fund inflows in 6 months ($2.7bn) (mostly via Global EM funds)
• Japan: 6 straight weeks of inflows ($0.9bn)
• Europe: tiny $73mn inflows (4 straight weeks)
• US: $8.6bn inflows (largest in 9 weeks)
• By sector: strong $2.3bn inflows to financial funds (largest in 13 weeks); largest inflows to consumer funds in 2 years ($1.1bn); inflows to materials in 14 of past 15 weeks ($0.8bn); inflows to energy in 10 of past 11 weeks ($0.5bn)

Source: BofA