Asset Class Flows (Table 2)
Equities: inflows 24 of past 26 weeks ($3.1bn; $13.7bn into ETFs,
$10.6bn outflows from mutual funds, largest in 52 weeks)
Bonds: inflows 37 of past 38 weeks ($1.2bn)
Precious metals: 6th straight week of in
flows ($0.3bn)
Fixed Income Flows (Chart 3)
Smallest of 50 straight weeks of IG bond fund inflows ($1.4bn)
6th straight week of HY bond fund outflows ($1.7bn)
EM debt inflows 43 of past 45 weeks ($2.2bn)
Largest muni funds outflows in 49 weeks ($0.6bn)
Small outflows from govt/Tsy funds ($0.04bn)
7th straight week of TIPS inflows ($0.3bn)
Small bank loan outflows ($0.3bn)
Equity Flows (Table 3)
US: modest inflows ($1.7bn)
Japan: modest inflows ($1.3bn)
Europe: small outflows ($0.5bn)
EM: small outflow ($0.4bn)
By style: small US small caps inflows ($0.6bn), largest outflows from US growth for 45 weeks ($3.9bn), 7th straight week of outflows from US value ($1.0bn)
By sector: inflows to financials ($1.5bn), consumer ($1.0bn), tech ($0.3bn), materials ($0.3bn), energy ($0.2bn); outflows utilities ($0.07bn), healthcare ($0.4bn), real estate ($0.7bn)
* Inflows to Wall St: $3.1bn into equities, $1.2bn into bonds, $0.3bn into gold
* “Growth” trade reverses: big (7th largest ever) redemption from US equity growth
funds, inflows to tech funds waning; coincides with bout of weakness in tech (e.g. EMQQ
-11%, SOX -10% in 10 trading days)
* “Yield” trade fades: smallest IG inflows in 50 weeks ($1.4bn), 6th consecutive week of
HY outflows; largest EM debt inflows in 26 weeks ($2.2bn) buck trend but note both EM
debt & equities struggling in recent weeks
* Rotation needs wages: “growth” in equities, “yield” in bonds = QE-leadership: ends
when “end of QE + start of fiscal stimulus + start of inflation = higher bond yields”;
missing evidence is inflation…US tax reform needs wage growth to cause higher yields
& sustained rotation to QE-losers; wage data critical in coming months
* Crashes need China: China bond yields rising in response to PBoC tightening (EM
reflects this); but higher China yields (Chart 1) precursor to asset inflection point (XBT,
EEQQ potential victims) not big global growth surge & G7 bond crash
* How to play the Nov payroll: note >0.3/0.4% MoM needed next 3-4 months to
breakout US wage growth above 3%; thus AHE <0.2% MoM = yield curve flattens, buy
US & EM tech, buy HY, sell volatility; AHE >0.4% MoM = yield curve steepens, buy RTY,
BKX, DXY, TPX, volatility
* Big Inflows…Poor Returns: record inflows 2017 into bonds ($347bn), stocks ($286bn);
but years of big equity inflows (2010/13/14) were followed by poor returns (2011/14/15
– see Table 1); this especially case when BofAML Bull & Bear high (currently 6.4); we
believe upside for risk assets in Q4/Q1 big but both credit & stocks peak early-18)