Investor Flows – The ‘Risk-On’ Mantra Continues

Investors maintain strong risk-on flows led by mid and large caps of both the domestic and global variety. Nearly 88 cents of every dollar of in-flows have been directed into equities, the most since October 2018. Non-cyclicals and now thematic funds remain out of favor.

Investors continue to prefer energy, financials and industrials over consumer staples, health care, and technology. The hunt for value continues given economic optimism and successful fiscal stimulus.

Inflation-friendly assets have yet to lose their luster even while realized inflation prints have been underwhelming. TIPS-related ETFs maintain a healthy pace of in-flows at $1.57 billion over a rolling one-month window. Materials have been the lone asset to lose a chunk of what had been strong in-flows.

Fervent buying activity of broad-based commodity ETFs has seemingly peaked, while sizable selling of precious metals has bottomed. As we commented last week, only 68% of world’s commodities are producing a positive rolling three-month return. This is quite the set-back from 96% in late February 2021. Any slowing in the risk-on tone may very well be seen first among commodities. 

Investors are again gobbling up global fixed-income assets as expectations rise the Federal Reserve’s shadow rate will be higher come early 2022. Flows into global equities are well off the peak, but still extremely healthy at a rolling one-month pace of $18.2 billion.

Surprisingly, U.S. Treasuries are finally finding demand with intermediate term maturities seeing the strongest in-flows. The Federal Reserve’s grip on the ultra-short-end remains very apparent via continued out-flows.

High yield and investment grade corporate bonds have yet to bounce back from recent out-flows. However aggregate bond funds have seen consistent in-flows near $4.2 billion on a rolling one-month basis.

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