Hedge Funds Just Unloaded The Most Stock Since December 2008

BofA Merrill Lynch equity strategists report data on what their clients are doing in the U.S. stock market on a weekly basis.

Last week, BAML's hedge fund clients unloaded the most stock since 2008, while institutions and retail clients were net buyers.

Most selling by hedge funds since 2008

Last week, during which the S&P 500 was up 0.9%, BofAML clients were net sellers of $963mn of US stocks following the prior week's large net buying. Net sales were entirely due to hedge funds, whose net sales were the largest since December 2008, and the second-largest in our data history. Despite this, hedge funds still remain small cumulative net buyers year-to-date. Institutional clients were net buyers for the second consecutive week-but remain the biggest net sellers YTD-while private clients continued their net buying streak (with purchases of equities in 21 of the last 22 weeks). Private clients are the largest net buyers of equities year-to-date, with $15bn of inflows into ETFs and $2bn of inflows into single stocks. By size segment, large, mid and small caps all saw outflows last week, and only mid caps have seen inflows YTD.

Biggest outflows ever from Consumer Discretionary stocks

Net sales last week were led by Consumer Discretionary, where outflows were the largest in our data history (since 2008). Tech, Financials and Staples also saw large net sales. The largest inflows were into ETFs, while Energy stocks also saw big inflows (largest since July 2012). Industrials currently has the longest net buying trend at four consecutive weeks, while no sector has seen two consecutive weeks of net sales. Based on four-week average flows, which are less volatile, clients continue to prefer defensives over cyclicals: Consumer Staples and Utilities have the longest net buying trends (since mid August), while Energy, Tech and Discretionary have the longest net selling trends (since late September).

In the week ended October 23, global investors poured $11.5 billion into U.S. equities. The BAML client data highlighted above cover the period from October 21 to October 25.