Skip to footer

Tug-of-war breaks out between private investors, hedge funds

While private clients and institutions are adding to stocks, hedge funds are becoming net sellers, pitching the two groups against each other in a stock market tug-of-war, Brown says. What effect will the opposition between the two groups have on the market in the long run? Brown breaks down the Bank of America Merill Lynch's latest equity flow report.

|
Brendan McDermid/Reuters/File
A screen displays the final closing number for the S&P 500 index at the New York Stock Exchange last month. The stock market is seeing an interesting trend where private investors are buying the dip in the market while hedge funds are taking in profits.

Right now there's a bit of a tug-o-war between what private clients and what hedge funds are doing about the recent patch of volatility we've seen in the stock market.

Savita Subramanian's quantitative research group at Bank of America Merrill Lynch does a really great job with their weekly equity flow reports.  The firm breaks up investors into three categories: Private Client (retail), Hedge Funds and Institutions (including pension funds).

This was an interesting week as private clients and institutions bought the 1% dip in the stock market while hedge funds took profits. Not that this is exactly the opposite of what we saw throughout the spring, as hedge funds were buying the new highs in April and May while retail investors sold into strength.

Some other highlights from BAML's report:

* Last week, during which the S&P 500 was down 1.0%, BofAML clients were net buyers of $725mn of US stocks following two weeks of net sales. Inflows were led by private clients, whose purchases of US equities were the largest since January.

* Year-to-date, private clients remain the only group who have been cumulative net buyers of US equities, but this is entirely due to ETFs.

* Six of the ten GICS sectors saw net buying last week, with inflows led by Tech. Flows into Telecom and Utilities were particularly large vs. history despite continued fears of QE tapering, with net buys of Telecom their largest since February and net buys of Utilities their largest since November 2011. Cyclical sectors continue to see net buying on a four-week average basis, which has been the case since late May, while defensive sectors continue to see outflows.

* No size segment saw net buying by all three client groups last week, while small caps saw net sales by all three.

Bottom line, private investors are adding to stocks - but all of the net flows are large cap, much of it is into ETFs and a lot of it is still dividend-driven (huge dip-buying into utilities) or dividend growth-driven (technology led by sector). Hedge funds, on the other hand, are now net sellers on a four-week rolling basis and - astonishingly - are now net sellers year-to-date, just as they had been throughout 2012.

We'll see how much longer the two segments can remain diametrically opposed and what effect this tug-o-war has on the tape.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Tug-of-war breaks out between private investors, hedge funds
Read this article in
https://www.csmonitor.com/Business/The-Reformed-Broker/2013/0618/Tug-of-war-breaks-out-between-private-investors-hedge-funds
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe