CHART OF THE DAY: BofA's Retail Investor Clients Just Staged A Huge Bond Market Exit
In the week ended September 11, 2013, investors poured $14.3 billion into mutual funds oriented toward stocks while yanking $3.5 billion out of bond funds.
"Bottom line: it's stocks over bonds as tapering approaches," says BofA Merrill Lynch chief investment strategist Michael Hartnett.
Hartnett and his team are the ones who coined the term "Great Rotation," the idea that the hundreds of billions of dollars that have flowed out of equity funds and into bond funds in recent years will reverse course - flowing out of bonds and back into stocks again - as investors finally overcome fears of another stock market crash and start placing bets on a resurgent American economy.
BAML has had the most success in selling the Great Rotation idea to its retail investor client base - those investors who aren't big hedge funds and institutions. All year, these clients have been rotating out of bonds and into stocks.
This past week, however, BofA's retail clients staged the biggest weekly move out of bonds since the big sell-off that has gripped the bond market this year began.
"BofAML private client flow data confirm aversion to bonds with outsized $3.6bn redemption in past week," says Hartnett.
Below is a complete breakdown of this week's fund flows, via Hartnett:
Asset Class Flows
Equities: $14.3bn inflows ($12bn via ETFs) (largest in 2 months)
Bonds: $3.5bn outflows (7 straight weeks)
Precious metals: 4 straight weeks of inflows (albeit small $0.1bn)
Equity Flows
EM: $2.6bn inflows = largest in 7 months (all via ETFs); note that inflows driven primarily by Global EM funds and LatAm funds (Brazil)
Europe: 11 straight weeks of inflows ($2.2bn)
US: $5.9bn inflows (first inflows in 5 weeks)
Japan: $1.1bn inflows (largest in 4 months)
Fixed Income Flows
64 straight weeks of inflows to floating-rate debt ($1.9bn)
Modest inflows ($0.7bn) to HY bonds
22 straight weeks of outflows from TIPS ($0.5bn)
16 straight weeks of outflows from EM debt ($1.1bn)
16 straight weeks of outflows from Munis ($2.0bn)
5 straight weeks of outflows from IG bonds ($1.2bn)