Here’s What Investor Flows Are Telling Me
According to AMG’s
recent mutual fund flow report, investors unwound their risk aversion trade from
last week, and, with the exception of high yield corporate bond
funds, they resumed their risk-taking investment strategies, which is typically
conducive to overall equity growth–as we’ve seen since March.
Equity Allocations Show Rebound In Risk Appetite
Stocks were this week’s biggest beneficiary from
investor flows as $2.8 billion made its way into equity mutual funds.
Particularly telling of the heightened risk appetite displayed by investors was
the $388 million allocation to funds that invest in small-cap growth stocks,
which are typically more susceptible to swings in liquidity than their larger-cap colleagues.
The $2.5 billion worth of inflows into
international equity funds more than offset last week’s outflows, by 150%. And
Japan’s MSCI Ishare
(
EJW |
Quote |
Chart |
News |
PowerRating) was the biggest winner in this category for the
week. Surely this is the result of recent indications that Japan’s ailing
banking sector, which has been weighing heavily on any economic recovery, may be
emerging from a 12-year slump?Â
Readers may recall a few weeks ago, I pointed
out that certain risk-averse institutional investors, namely Calpers, have been
committing financial capital to Japanese equities. Indeed, positive signs are
emerging from Japan that its economy may be ready to turn the corner to growth.
However, the US equity markets still offer more attractive opportunities for
investors at this time, in my view.
Bond Funds Post Modest Inflows
Investors allocated $157 million to bond mutual
funds for the week ended May 28, following $2.2 billion the week before. Most of
the inflows went into mutual funds investing in mortgage backed securities, as
mortgage applications surged by 202.4% last week from the same week one year
ago.
Elsewhere in bond land, investors withdrew $620
million from corporate high yield bonds for a second week. Admittedly, this
group has made impressive gains year to date and some profit taking is in order,
however, sustained selling of these instruments would eventually be a negative
development for equities as the performance of these two classes are highly
correlation–as evidenced by the sell off in junk bonds in 2000, before the
equity markets.