According to our friends at TrimTabs, contrary to speculation that “money remains on the sidelines”, far from the “most hated rally ever”, the month of July saw a near-record $43.0 billion in new cash added to bond, commodity, and equity exchange-traded funds in July, the biggest monthly inflow since December 2014, when these funds hauled in $50.7 billion.
Why the dramatic allocation away from cash and to risk assets? “Fund flows suggest market participants are as confident as ever that central bank intervention will keep inflating asset prices,” said David Santschi, chief executive officer at TrimTabs.
As Santschi points out, “the only major asset class with significant outflows last month was European equities.” Europe-focused equity ETFs shed a record $4.5 billion, equal to 10.5% of their assets.
In a research note, TrimTabs reported that July’s inflow into ETFs was equal to almost half of the year-to-date inflow of $103.2 billion. U.S. equity ETFs alone took in $27.9 billion, equal to 2.0% of their assets, the biggest monthly inflow since December 2014.
“Several of the riskiest areas of the market, including emerging markets stocks and foreign bonds, had massive inflows,” said Santschi. “Such enthusiasm is a cautionary sign from a contrarian perspective.”
Perhaps that’s true, but keep in mind that in just three weeks that the buyback blackout period will be over and companies will rush to take the place of investors as marginal buyers, in the form of stock repurchases. And, as Goldman reiterated over the weekend, 2016 is about to be another record for buybacks, which are now expected to hit an all time high of $600 bilion, the same amount as QE2, and up 7% from the prior year. All said, Goldman now expects over $2.5 trillion in buybacks to take place by the end of 2016.
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