Outflows from US-focused equity ETFs and mutual funds now exceed $50 billion for 2023.
Generally speaking, it’s helpful to ask where the marginal bid for stocks is likely to come from, and sometimes there aren’t any great answers.
This is a topic I revisit at regular intervals, most recently here. In the latest weekly reporting period, US equity funds shed $8.838 billion, according to EPFR. It was the third consecutive weekly outflow and brought the YTD exodus to $55.48 billion.
Last week’s outflow from US-focused funds drove the largest overall outflow from global equities in 10 weeks. The juxtaposition between developed market and emerging market stock fund flows is now even more stark after EM funds gathered $3 billion against $9.5 billion pulled from DM. Europe suffered an eighth straight weekly outflow.
According to Goldman, retail buying of ETFs helped offset the impact of single stock sales by individual investors in the US during 2022. While not apples-to-apples, it’s worth noting that flows are negative for US-focused ETFs in 2023, albeit just barely. The $55.48 billion figure mentioned above counts $51.8 billion from mutual funds and $3.7 billion from ETFs.
Looking ahead (and addressing the marginal bid question posed above), buyback executions could still be constrained by cautious management teams, even as authorizations are running at a very brisk pace. Households are still likely to be net sellers in 2023, according to some estimates.
Of course, 2023’s flows story continues to be a tale of high-yielding cash. US money market funds raked in another $47 billion last week, taking total assets to a new record beyond $5.3 trillion.
As the figure above from BofA makes clear, the “winner” from stress across US regional banks is money market funds. That’s insult to injury for smaller lenders given that the ~5% offered by government money funds is a key catalyst for deposit flight.
For context, BofA’s Michael Hartnett noted that the $588 billion inflow to cash over the last 10 weeks ($693 billion YTD) is on par (there’s that pun again) with a $500 billion inflow to money market funds around Lehman, albeit short of the astounding $1.2 trillion haul seen in and around the onset of the pandemic.
