Hedge Funds Buy The Post-Brexit Dip

Hedge funds helped boost the S&P 500 to its best weekly return year to date last week by purchasing U.S. stocks. The index rallied 3.2% as hedge funds and other investors purchased the post-Brexit dip.

Hedge funds still buying stocks

Bank of America Merrill Lynch strategists Jill Carey Hall and Savita Subramanian said their firm’s clients bought $824 million worth of U.S. stocks last week to become net buyers after three consecutive weeks of net sales.

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They reminded investors that sales during the week of Brexit were “subdued” as a result of sentiment and positioning that were already negative. After analyzing last week’s flows data and combining it with data from Brexit week, they concluded that their firm’s clients bought the post-Brexit dip after selling for most of the weeks since January.

Hedge funds led the net buying and, in fact, they have bought stocks for the last four consecutive weeks, the BAML team reported. Private clients, on the other hand, became net buyers for the first week since February. Institutional clients continued to sell stocks, just as they have during most of this year’s selling streak.

ETFs lead the buying

The BAML team said exchange-traded funds led the buying as they recorded their largest inflows since December as all three major client types bought them.

In aggregate, single stocks saw sales. Looking at sectors, they observed the biggest bet buying in Tech and Health Care as inflows into both sectors for the last two weeks marking a reversal from the selling streaks that were observed previously in both of them. Materials and Energy stocks also recorded both inflows, while the largest net outflows were in Staples, Industrials and Discretionary.

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For all of the second quarter, they said only Telecom saw net buying among their firm’s clients, a trend they said is also true for the first half of the year. Industrials and Health Care recorded the largest net sales for the full second quarter and also for the first half of the year. Tech was also lumped in with Industrials and Health Care in terms of high sales in the first half of the year.

No sector recorded net buying or net selling by all three client groups (hedge funds, institutional clients and private clients). The BAML team also said that last week net sales by pension funds were at the highest level in a year with ETF sales and defensive sector stocks leading the way. Pension funds unloaded sectors in the Staples, Health Care and Utilities sectors but bought Discretionary stocks last week.

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