With markets like the S&P 500 having one of their worst starts to a year ever, some investors have predictably turned to so-called safety plays like gold, treasuries and money markets. But what was a jog in that direction last month may be turning into a headlong run.
According to Bank of America Merrill Lynch's most recent report on client flows, last week can be defined as a "gold rush" as precious metals saw the second largest inflows in almost six years. This comes as gold in particular has been a standout in 2016, rallying to 12-month highs.
Bank of America Corp.'s report, from a team led by Chief Investment Strategist Michael Hartnett, also found that other safe havens saw large inflows. Some of the numbers include $24.3 billion into money-markets, $3.6 billion into treasuries and munis, and $1.6 billion into precious metals.
On the flip side, a number of riskier areas saw investors retreating. "Outflows from risk: Equities ($6.8B –redemptions from all regions), High Yield ($2.5B) and Emerging Market debt ($1.1B)," the report said. Health care and biotech, which have been hit particularly hard in 2016, have seen their second largest outflows in four years, the survey showed. Financials have also seen investors fleeing as banks, particularly those in Europe, have taken a beating.
While these extremes may mean there will soon be light at the end of the tunnel, the team isn't convinced we've seen the worst of it.
"Bottom-line: cash is high, markets are oversold & clients are rhetorically bearish…but frustratingly, flows don’t yet reveal true investor capitulation," they write. "Watch Feb’16 Fund Manager Survey [another survey from Bank of America] next Tuesday for fresh evidence of investor panic. Until then, we remain sellers of any and all counter-trend rallies unless profit/growth expectations can reverse higher or we get a big- bang coordinated global policy response."