Investors rounded off a bruising year of rising interest rates and high inflation by retreating from equity funds at the fastest pace in more than two decades.
New data from EPFR show a net withdrawal of nearly $42bn from global equity funds in the week to Wednesday, with the Federal Reserve’s subsequent warning that borrowing costs are unlikely to fall until 2024 denting what little festive cheer remained.
Analysis of the data by Barclays shows this is the biggest outflow from products including exchange traded funds in the asset class since 2000, and marks only the second example, after the same week last year, of weekly outflows exceeding $40bn, despite the 15 per cent jump in global stocks from mid-October to the start of December.
“Widespread de-risking” before the end of the year suggested investors are “highly sceptical of the recent rally, and seem to have used it as an opportunity to sell”, said Emmanuel Cau, head of European equity strategy at Barclays. Global stocks have fallen by 20 per cent in 2022.
Taking some profits in the run-up to the new year is not uncommon, but the scale of last week’s moves underscore how the Fed’s plan to keep interest rates high next year even as the US economy slows has dented optimism fuelled by the past few months of slowing inflation figures.
Contrarian retail investors were less perturbed by hawkish central bank projections, however, snapping up $1.1bn worth of US equities every day last week, according to analysts at Vanda Track.
Barclays’ figures show US funds suffered the biggest net withdrawals, losing $37bn, with tech and financials the sectors hardest hit. Global and European funds lost $5bn and $3bn, respectively. Healthcare and industrial stocks registered their largest outflows since 2003.
Bond fund investors also headed for the exit in the week ending December 21, with outflows from corporate and sovereign debt vehicles totalling $10bn.
That marked the first such weekly outflow since last month, and the largest withdrawal since October.
Still, European corporate debt funds and US Treasuries posted weekly inflows in the run-up to the end of 2022, as did Japanese and emerging market equities.
Wall Street’s S&P 500 rose 13 per cent from mid-October to the end of November but has fallen since then, with the Fed’s December move to slow its interest rate rises overshadowed by an increase in the central bank’s year-end 2023 rates forecast to 5.1 per cent. The Fed’s current policy rate is between 4.25 and 4.5 per cent.
Additional reporting by Harriet Clarfelt