We have seen 9 weeks of retail buying of equities after four years dominated by
outflows. Emerging markets is the favourite destination but Europe is also
seeing inflows
 Risk appetite among institutional funds has risen substantially and is close
to neutral
 Materials is a contrarian call in the US and banks and energy are contrarian
calls in Europe
The retail investor is back
After six months of rising equity markets investors are left wondering how long it can last. We read the latest flows
as positive because they show retail investors are warming up to equities. Equity inflows have been positive for nine
weeks (up to 23 January). Emerging markets are the favoured destination, attracting half the inflows, but the real
turnaround is in Europe, where outflows over the past six years amount to 15% of the value of European funds.
This inflow bodes well for emerging markets where holdings have fallen substantially over the past six months.
There are some warning signs for Japan where holdings have faltered after jumping sharply late last year.
Institutional investors are positioned very cautiously in the US. Their biggest overweight is in healthcare and the
sector has recently underperformed. They showed some foresight by reducing weightings in tech hardware before
Apple’s recent well-publicised weakness.
Institutional funds remain underweight banks in Europe. By being underweight an outperforming sector they have to
buy to stand still. This explains why the underweight remains large even though there has been plenty of buying.