Since Federal Reserve Chairman Ben Bernanke testified before Congress on May 22, failing to rebuff the suggestion that the central bank could begin tapering back bond purchases as soon as Labor Day (September 2), the U.S. stock market has experienced an unusual bout of weakness.
Despite the volatility, hedge funds held on and continued to invest in equities, right up until last week, when they became sellers.
These are the findings from BofA Merrill Lynch equity strategist Savita Subramanian's latest report, which details weekly flows based on what BAML clients are doing.
Last week, during which the S&P 500 was up 0.8% amid a payrolls number that was largely in-line with expectations, BofAML clients were net sellers of US stocks for the second consecutive week. At $206mn, net sales were more muted than the prior week, when fears of the Fed tapering roiled the market. Hedge funds—who had previously been the only group exhibiting faith in the market rally with seven consecutive weeks of net buying—had the largest net sales last week. Institutional clients were also net sellers, while private clients were the sole net buyers in their second week of inflows. By size segment, small caps and mid caps saw outflows while large caps saw inflows. Year-to-date, cumulative outflows from US stocks total $10.8bn—nearly matching the $10.9bn of outflows for the full-year 2012 (see Table 1 inside), primarily due to net sales by institutional clients.
The chart below shows the big reversal in hedge fund buying last week.
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