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BofA: 'It's Getting Frothy, Man!'

Matthew Boesler

BofAML Global flow trading rule approaching “sell” signal for global equities

BofA Merrill Lynch Global Investment Strategy, EPFR Global

In the week ended October 30, investors poured another $12.4 billion into global equity funds — with $4 billion of the total going into long-only funds, according to the latest data from EPFR Global.

In a note to clients — titled "It's Getting Frothy, Man!" — BofA Merrill Lynch chief investment strategist Michael Hartnett writes, "A nother $8-9 billion of inflows to long-only equity funds over next 2 weeks would trigger a contrarian 'sell' signal (Chart 2). Bullish investor flows dovetails with our Bull & Bear Index, which is on course to trigger a cautionary risk- off signal in mid-November."

BAML Bull & Bear Index

BofA Merrill Lynch Global Investment Strategy, Bloomberg

In a Wednesday note to clients, Hartnett warned about the Bull & Bear Index.

"A breach of the 8.0 level on our Bull & Bear Index would make us more negative short term," wrote Hartnett. "C ash remains high, 4.4% in our October Fund Manager Survey, and needs to fall below 4.0% in the November survey to help trigger a tactical 'sell signal'."

Below is a complete breakdown of this week's flows, via Hartnett.

 

Asset Class Flows

Equities: $12.4bn inflows ($4bn via LO funds)

Bonds: $3.7bn outflows (outflows in 12 out of past 14 weeks)

Precious metals: $0.4 outflows (7 straight weeks)

MMF: second straight week of inflows post debt-ceiling resolution

Equity Flows

Europe: 18 straight weeks of inflows ($2.3bn)

Japan: 8 straight weeks of inflows

US: $7.6bn inflows (majority via ETF’s – SPY, XLP, XLE, QQQ)

EM: modest outflows (first outflows in 4 weeks)

By sector, chunky inflows to Energy ($1.4bn) and Consumer ($1.2bn); outflows from Utilities and Healthcare

Fixed Income Flows

Largest outflows from IG bond funds in 18 weeks ($3.3bn) (caveat:outflows concentrated in one fund)

71 straight weeks of inflows to floating-rate debt

8th straight week of inflows to HY bond funds ($1.6bn)

8th straight week of redemptions from govt/tsy funds

5 straight weeks of outflows from EM debt funds

29 straight weeks of outflows from TIPS



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