Investors Are Fleeing Small-Caps In Record Numbers, Piling Into Technology

Credit Suisse analyst Lori Calvasina recently took an in-depth look at November fund flows to gauge the tide of the market. Here’s a look at what she found.

Why Fund Flows Matter

According to Calvasina, inflows were a driving force behind the U.S. market rally in 2013 and 2014. Credit Suisse's observed outflow of money from U.S. stocks in favor of international stocks also coincided with the relatively weak returns in U.S. markets this year.

Market Cap Numbers

All market cap sizes in the United States have booked outflows so far in 2015, but large-cap names have witnessed the heaviest outflows. However, the November numbers showed deepening outflows for all market caps, including new five-year lows for small caps.

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Growth Versus Value

With high-growth stocks like Amazon.com, Inc. AMZN and Netflix, Inc. NFLX leading the S&P 500 in 2015, the market still seems to be favoring growth over value. However, the flow data tells a different story.

“Flows have been better in value than growth in 2015 by a significant margin in small caps, and by a slight margin in mid and large cap,” Calvasina explained. She added that both growth and value stocks have witnessed negative overall flows this year.

Market Sectors

So far, 2015 sector inflows have been led by healthcare, while utilities and industrials have witnessed the largest outflows.

In November, technology inflows were the strongest, reaching new five-year highs. Calvasina noted that technology flows could be “ripe for reversion.”

In addition to strong inflows in technology, she added that the financial and communications sectors recoded improving inflows in November, and energy logged its fourth consecutive month of inflows.

Year-to-date, the Technology SPDR (ETF) XLK and the Health Care SPDR (ETF) XLV have booked positive gains, while the Select Sector Financial Slct Str SPDR Fd XLF and the Energy Select Sector SPDR (ETF) XLE have majorly underperformed the S&P 500.

Disclosure: The author holds no position in the stocks mentioned.