Investors still pouring into cash, but pace slows: BofA

INVESTORS pumped US$25.1 billion into cash in the week to Wednesday (May 17), but the flow into cash funds has slowed recently, reflecting a greater degree of investor confidence, according to a report from BofA Global Research on Friday.

A total of US$151 billion went into money market funds over the last four weeks versus US$404 billion in the four weeks after Silicon Valley Bank collapsed in March and the banking sector was engulfed in turmoil, the BofA report showed.

Meanwhile, investors bought US$5.6 billion of bonds and pulled US$7.7 billion from equity funds in the week to May 17.

The report also showed US Treasuries clocking up 14 straight weeks of inflows, with investors buying US$4.3 billion in the week to May 17.

They also showed a preference for investment grade bonds – which have seen inflows for seven weeks and a weekly inflow of US$4.9 billion – over high yield bonds, from which investors pulled US$2 billion last week.

The BofA analysts said a 60/40 portfolio, which typically allocates 60 per cent of assets into stocks and 40 per cent into bonds, has recorded a 28 per cent annualized return in 2023, turning things around after a “disastrous” 2022.

A total of US$1.1 billion went into tech stocks, marking a fifth week of inflows, as investors chose growth names over value.

Investors took US$700 million out of financial funds, while real estate investment trusts saw their largest outflows since November 2022, totaling US$600 million.

Looking forward to the next 12 months, BofA said the “biggest pain trade” will be Federal Reserve interest rates at 6 per cent rather than 3 per cent.

BofA said its bull and bear indicator – a measure of market sentiment in which a higher reading is more bullish – jumped from 3.4 to 3.5, its highest level since Mar 14. REUTERS