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BAML - Equity funds suck in £15 billion amid cautious return of risk appetite

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LONDON (Reuters) – Investors pumping $19.2 billion (£15.1 billion) into equity funds in a second week of healthy inflows pointed to a nascent risk appetite, though inflows into high-yield and emerging market debt showed an unabated hunt for yield, said Bank of America Merrill Lynch.

Equity fund inflows over the past two weeks now amounted to $34 billion versus redemptions of $10 billion from government bond funds, which signalled “risk-on”, BAML wrote in its weekly note published on Friday and citing EPFR flow data.

U.S. equity funds attracted $20.7 billion in their 8th biggest ever weekly inflows, though Europe equity funds lost $1.3 billion having suffered outflows in 77 of the past 80 weeks.

However, there was scant evidence that a full-swing turnaround was underway. Flows confirming what BAML labelled the “hate rotation” were inflows to emerging market stocks of $21 million – the first positive weekly flows since April – as well as financials. Yet the “vicious Sept outperformance of cheap, unloved, rate-sensitive assets has not caused flow rotation”, with Europe and Japanese stocks as well as resource sector equities still suffering outflows, BAML added.

Fixed income funds attracted overall $6.6 billion in their 37th week of inflows with investment grade bond funds adding $5.2 billion, BAML said.

High-yield bonds funds pulled in $3.6 billion in their biggest weekly draw in 12 weeks, while investors ploughed $900 million into emerging market debt funds.

BAML’s bull & bear indicator nudged up to 0.8 from 0.7 last week, though still was in “extreme bear” territory.

(Reporting by Karin Strohecker; Editing by Tom Arnold)

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