The Flow Show: Cash at record low as Active revives

Talking Points

Risk-on flows: $9.9bn into equities & $10.7bn into bonds (nearly all corporate bonds), as global stock markets and credit indexes hit all-time highs

Active funds make comeback: largest inflows of $3.5bn to active equity funds in 2½ years

Soaring returns: annualized YTD returns...tech stocks 55%, EM stocks 50%, biotech 36%, EAFE stocks 33%, European HY 27%, banks 27%, US stocks 18%, US CCC HY 16%

Lovey-dovey central banks: Fed/ECB/BoJ all dovish in recent weeks...only bond sectors with outflows this week = Treasuries and floating-rate bank loans (latter previously big YTD inflow winner in anticipation higher rates)...and biggest inflows to HY in 3 months as investors aggressively buy "yield" theme

Europe & EM over US: past 3 months $24bn outflows from US stocks, $19bn into European stocks & $20bn into EM stocks, driven by more attractive rates & EPS outlook

Private client cash at record low: GWIM cash allocation % AUM falls to all-time low of 10.4% (Chart 1); note equity allocation at 60.3% still below Mar’15 high of 63%

Icarus: strong inflows, "active" inflows, big returns, record low private client cash...Icarus won’t soar forever; but big Humpty-Dumpty fall in risk assets awaits hawkish central banks + EPS/GDP reversals; in absence of immediate negative impact on small business employment following Obamacare repeal/replace failure and/or lurch toward tech-negative Occupy Silicon Valley policies, we think big fall in markets an autumn not summer event; meantime 2660 SPX & 510 ACWI = global market cap as % of GDP reaches record highs...both remain reasonable Icarus targets

Chart 1: Private client cash allocation at record low as % of assets

Source: BofA Merrill Lynch Global Investment Strategy, BAC data