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The Flow Show Summary

Core Content Overview

This report from BofA Global Investment Strategy provides a comprehensive analysis of current market trends, investor flows, and investment strategies across various asset classes and regions. It highlights key macroeconomic indicators, sectoral performance, and strategic positioning for investors in 2025.

Main Points and Key Information

YTD Performance of Asset Classes

• Equities: $24.0bn inflow, with $28.7bn going to ETFs and $4.7bn outflow from mutual funds.
• Bonds: $17.6bn inflow over the past 6 weeks.
• Precious Metals: $0.5bn inflow over the past 3 weeks.
• Crypto: $0.2bn inflow.
• Gold: 7.1% YTD return.
• Cash: $0.5bn inflow, with cash/MMF showing a record $174bn inflow in January.

YTD Flow Highlights

• Cash/MMF: Record $174bn inflow in January.
• Treasuries: Record $17bn inflow in January.
• Global Stocks: Biggest January inflow since 2018 ($93bn).
• US Stocks: Record $76bn inflow in January.
• US Large Cap Stocks: Record $66bn inflow in January.
• EM Stocks: First outflow since 2016 ($3bn).

BofA Private Client Allocations

• AUM: $3.9tn.
• Equity Allocation: 63.5% of AUM.
• Debt Allocation: 19% of AUM.
• Cash Allocation: 11% of AUM.
• ETF Holdings: 18% equity ETFs, 15% debt ETFs.
• GWIM: Allocation to stocks is highest since Mar'22, with "Magnificent 7" accounting for 11% of total GWIM AUM and 36% of stock holdings.

Investment Strategy Highlights

• Trough PMI: US and global manufacturing PMIs are expected to rise from contraction to expansion, suggesting a potential buying opportunity.
• Recommended Positions:
  • Long commodities
  • Long HY bonds
  • Long international stocks, especially Japan & EU banks
  • Long EM stocks if the US dollar peaks
  • Old economy cyclicals, such as materials
• US Exceptionalism: Peaking due to factors like high government spending, immigration, and the Al capex bubble, with a potential shift towards international markets.

Global Policy Rate Cuts

• 2024: 164 cuts, 32 hikes.
• 2025: 10 cuts, 3 hikes.
• The pace of rate cuts has peaked, and investors should position for a flatter yield curve.

Key Market Trends

• US Growth: Driven by government spending, immigration, and Al capex.
• Global Growth: Supported by the "trough PMI" theme, with a focus on cyclical sectors.
• EM Debt: Record inflow of $1.4bn in January.
• HY Bonds: Record inflow of $2.1bn in January.
• Tech Sector: Largest inflow in 3 months ($6.5bn).
• Financials: Largest inflow since Jan'22 ($2.7bn).

Regional Flows

• US: Inflows past 5 weeks ($20.8bn).
• Japan: First outflow in 3 weeks ($0.3bn).
• Europe: Outflows past 18 weeks ($23mn).
• EM: First inflow in 3 weeks ($0.8bn).

Sectoral Flows

• Inflows: Tech ($6.5bn), Financials ($2.7bn), Consumer ($0.5bn), Commodities ($0.2bn), Real Estate ($0.2bn).
• Outflows: Utilities ($0.1bn), Energy ($0.4bn), Healthcare ($0.5bn), Materials ($0.7bn).

BofA Bull & Bear Indicator

• Current Signal: Neutral (4.2 from 4.0).
• Components:
  • HF Positioning: Neutral (50th percentile).
  • Credit Market Technicals: Very Bullish (89th percentile).
  • Equity Market Breadth: Bearish (23rd percentile).
  • Equity Flows: Bearish (28th percentile).
  • Bond Flows: Neutral (34th percentile).
  • LO Positioning: Very Bullish (82nd percentile).

2025 Cross-Asset Winners & Losers

• Top Gainers:
  • Europe Equities: 6.1%.
  • Gold: 4.9%.
  • UK Equities: 4.0%.
  • Brazil Equities: 9.2%.
  • Germany Equities: 9.1%.
  • Korea Equities: 8.9%.
  • Greece Equities: 8.6%.
  • Spain Equities: 7.8%.
  • Switzerland Equities: 7.8%.
  • France Equities: 7.3%.
• Top Losers:
  • Commodities: 3.3%.
  • US Treasuries: 5.0%.
  • Global IG Bonds: 3.1%.
  • US Small Cap: 0.3%.
  • US Growth: 0.2%.
  • EM Sovereign Bonds: 1.0%.
  • Investment Grade Bonds: 0.5%.
  • Government Bonds: 0.4%.
  • MSCI EAFE: -14.0%.
  • MSCI EM: -30.6%.

Investment Recommendations

• Long International Equities: Especially in Japan and EU banks, as they are in secular bull phases.
• Long Commodities, HY Bonds, and EM Debt: As these are seen as the best trades for the "trough PMI" theme.
• Monitor US Dollar: If it peaks, EM stocks could be a good investment.
• Shift from Growth to Value Stocks: Particularly in Europe, where value stocks are outperforming growth.

Disclaimer

The indicators and strategies discussed are for informational purposes only and should not be used as a benchmark or for performance measurement. Back-tested performance does not reflect actual results and is subject to market changes. Investors should be aware of potential conflicts of interest and consider this report as one of many factors in their investment decisions.