Investors grudgingly reposition for reflation, Merrill says

Investors continued to warm to the idea of 'reflation', but only "grudgingly", pointing to a belief among investors that there was one last 'melt-up' left for risky assets, but not more, strategists at Bank of America-Merrill Lynch said.

Consistent with the above, on the basis of their own clients´ investment allocation choices and data from EPFR Global, BofA-ML said the real money flows had yet to show a "big" capitulation in terms of asset allocation, with a shift from bonds and into stocks.

Indeed, for the week ending on 25 January inflows into Equities were a miniscule $0.2bn, albeit amid a sharp rotation out of mutual funds and into ETFs.

Bonds on the other hand saw inflows of $8.6bn, the largest such intake in four months.

Precious metals meanwhile saw $0.2bn of outflows, the tenth week of falls out of the last eleven.

A closer look at fixed income flows

Within the fixed-income space, inflows into high yield bonds hit $1.5bn, making for eight weeks of inflows out of the past nine.

Inflows into Investment Grade also rose significantly, to $3.6bn, while bank loand funds took in $1.1bn, TIPS absorbed $0.5bn (11 straight weeks of inflows) and Emerging Market debt funds saw $0.4bn of outflows (first drain in four weeks).

Among equities ...

Japanese stocks were wanted, with the class taking in $3.1bn (inflows in 4 of past 5 weeks), while shares from Emerging Markets attracted $1.0bn of flows, but Europe only saw $0.2bn of inflows.

Equities in the States on the other hand saw $6.3bn worth of outflows, the most in four months.

By sectors, Healthcare suffered the largest weekly drain in 10 months, to the tune of $1.0bn (outflows in 8 of past 9 weeks), while Technology scooped up $1.0bn of client funds - the most in 14 weeks - and inflows into Materials came in at $0.6bn (for an eleventh week of inflows out of the last 12).