Institutional investors had the second-largest weekly outflow in single stocks since records began in 2008, as reported by Bank of America on Tuesday.
The report by Jill Carey Hall, CFA, Savita Subramanian, and Nicolas Woods highlighted that institutional clients primarily drove the selling.
“Clients were net sellers of U.S. equities for the first time in three weeks,” Bank of America wrote in its note.
The outflows triggered by institutional investors were the second-largest since 2008 and the most significant since 2015, predominantly driven by the sale of Tech, Discretionary, and Staples stocks. Sales were recorded in seven of the 11 GICS sectors.
This move occurred during a week in which major U.S. large-cap equity indexes, including the SPDR S&P 500 ETF Trust SPY, reached new all-time highs, with the SPY ETF achieving its 12th weekly gain in the last 13 weeks.
However, when looking at the broader picture for January, these outflows from stocks by institutional clients align with the average observed over the past five years.
A Trend Towards Stronger Diversification, Not Outright Withdrawals
Interestingly, the data suggests a trend towards diversification rather than a total market exit.
Bank of America clients have been selling single stocks for the first time in eight weeks, while simultaneously buying equity ETFs for the first time in four weeks. This indicates a strategic shift in investment preferences.
Bank of America’s Weekly Client Flows By Sector (Single Stocks) And ETFs
| Sector | 1/22/24 | 1/15/24 | 1/8/24 | 1/1/24 | 4-week Average |
|---|---|---|---|---|---|
| Consumer Discretionary | -517 | 313 | -379 | -236 | -205 |
| Consumer Staples | -854 | 17 | -530 | -78 | -361 |
| Energy | -2 | 389 | -195 | 49 | 60 |
| Financials | -494 | -773 | -190 | -146 | -401 |
| Health Care | 50 | 1326 | 1551 | 593 | 880 |
| Industrials | 263 | -678 | -42 | -207 | -166 |
| Technology | -877 | 650 | -342 | -1635 | -551 |
| Materials | -55 | 5 | -20 | -20 | -22 |
| Real Estate | -94 | 163 | 217 | 158 | 111 |
| Communication Services | 721 | 1652 | 1845 | 1569 | 1447 |
| Utilities | 37 | 167 | 180 | 133 | 129 |
| ETFs | 709 | 79 | -1092 | -2228 | -633 |
| Total | -1114 | 3310 | 1003 | -2047 | 288 |
| Total excluding ETFs | -1822 | 3231 | 2095 | 180 | 921 |
| Total untagged flows | -714 | 3274 | 944 | -2109 | 349 |
While institutional clients were on the selling side of single-stock names, private clients and hedge funds were on the buying side.
A pivot away from large-cap stocks was observed, with increased interest in mid and small caps. Growth/Blend ETFs were preferred over Value ETFs.
The report highlights that institutional investors appear to be recalibrating their portfolios, possibly in response to changing market dynamics.
The shift towards mid and small-cap stocks and growth/blend ETFs indicates a strategic search for greater diversification out of dominant large-cap names.
More and more analysts are, in fact, beginning to issue warnings about the extreme market concentration in a handful of stocks.
An analysis from JPMorgan, published on Tuesday, revealed that the top 10 stocks in the S&P 500 index make up approximately 30% of the overall index, which is not far from the 33% reached during the 2000 dot-com bubble.
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