Bank of America Institutional Clients Exiting Equities

Bank of America

Bank of America Merrill Lynch’s biggest-money clients,

such as mutual funds and endowment funds, have been net sellers of equities for 14 straight weeks, according to a report by Business Insider. This is the longest selling streak since records were kept in 2008 as well as the longest net selling streak since late 2010, when institutional clients were net sellers for 12 straight weeks. Two weeks ago, Merrill’s mutual funds and endowment funds pulled $2.8 billion out of equities. All of this would appear to be bearish news, but that’s not necessarily the case.

Early Warning vs. Contrarian Indicator
When big money is moving out of the market, it shows that they’re not confident in the sustainability of the market’s move. On the other hand, according to Savita Subramanian, head of U.S. equity and quantitative strategy in global macro research at BofA Merrill Lynch, when sentiment is this bearish it often proves to be a contrarian indicator. When sentiment is overly negative, it’s easier for good news to surprise and act as a positive catalyst. However, Subramanian warned that past results don’t guarantee future success. (For more, see: Investing Like a Contrarian.)

The healthcare sector has been taking the biggest hit, which relates to politics and Hillary Clinton’s plan to stop or at least curb price gouging in the biotech space. Industrials have been the best performers. This heavily relates to extremely low expectations, which makes it easier for these companies to beat on their top line and bottom line.

It’s not just institutional clients who have been selling. Jim Carey Hall, equity and quant strategist also at BofA Merrill Lynch, recently stated: “Negative equity sentiment has also been echoed by our sell side indicator, which recently generated a contrarian buy signal. Net sales continue to be led by institutional clients, while hedge funds and private clients were also sellers.” (For more, see: Five ETFs for Contrarian Investors.)

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