The week ended on 4/07/2021, the Refinitiv Lipper US Fund Flow All Equity funds reported net outflows totaling -$4.054 billion. The Domestic Equity funds showed net outflows of -$4.539 billion, and the Non-Domestic Equity funds report net inflows of $0.485 billion.
Based on the fund flows, institutional investors may have been building up their cash balances since the beginning of the year. Some estimates suggest total cash positions have risen to as high as $2-3 trillion. If cash positions are the catalyst to ignite the next sustainable stock market rally, this bodes well for a second-half rally.
The increase in cash positions coincided with the selling of growth and technology stocks on the backdrop of higher interest rates, rising expectations of an economic recovery, inflation concerns, and the end of the quarter window dressing. High valuations and wide discrepancies between growth and value stocks probably triggered the recent Feb to Mar 2021 corrections.
The technology-laden Nasdaq Composite Index (COMPQ) fell 12.5%, the mega-cap heavy Nasdaq 100 Index (NDX) declined 12%, the NYSE Fang Plus Index (NYFANG), and the MicroSectors FANG+ ETN (FNGS) plummeted 17.3% and 17.2%, respectively. NYFANG is an index that provides exposure to 10 of today's mega-cap Technology giants. The index is an equal weighting of the10 mega-cap Technology names. AAPL, AMZN, GOOGL, FB, TSLA, NFLX, NVDA, TWTR, BABA, and BIDU. Because it is equal-weighted across all stocks, it allows for a diversified portfolio closely correlated to the large-cap technology sector. Based on the 34.26% annualized total return from the inception of trading on 9/19/2014 to 1/29/2021, it has outperformed NDX (21.09%), XLK (22.91%), and SPX (12.35%).
Based on the recent resurgences of FAANGM stocks, investors may be returning to the technology sector. COMPQ and NDX have also cleared above their 50-day moving averages and are now approaching their pivotal mid-Feb 2021 all-time highs. New record highs further reinforce the bullish technical outlooks.
The recent sharp price recoveries coupled with improved readings from technical indicators such as MFI (money flow index), MACD, and RSI hint of large money managers beginning to return to select growth and technology stocks. It may be one of the primary reasons for the recent Nasdaq and Tech/Growth downtrend reversals. However, another reason centers upon the liquidity of mega-cap technology names. Money managers typically focus on mega-cap stocks because they can quickly and easily build sizeable positions if they believe these high-growth names will trend higher.
Enclosed are Nasdaq Composite Index, Nasdaq 100 Index, NYSE FANG Plus Index, MicroSectors FANG+ ETN, and NYSE FANG Plus stocks.