Credit Suisse Follows The Money: June's Best & Worst U.S. Equity Sectors

Credit Suisse U.S. Equity Strategist Lori Calvasina his week published research focused on the inflows and outflows of dollars in U.S. Equity Funds.

Each month, Credit Suisse carefully examines Morningstar flows, which were recently updated through June. The data set included a broad sample of actively managed and passively managed funds (including ETFs).

Notably, "Strong inflows were a powerful underpinning of the rally in US small, mid, & large caps in 2013, and 2014's rally in large caps, according to Calvasina."

The report looked at both sectors and categories, such as value vs. growth, as well as Morningstar performance data vs. fund benchmarks.

Credit Suisse - Big Picture Headlines

• U.S. outflows persist, as weakness in large-cap flows persists and the improvement in small-cap flows takes a pause.
• Healthcare flows approach past peaks.
• Financials inflows improve, while utilities and REITs outflows deepen.

Sectors At A Glance

According to Calvasina, "Evidence of positioning for rising rates continues to be seen in funds flow data. Financials flows have improved dramatically since January, strengthening further in June. Meanwhile, Utilities outflows took a turn for the worse in June, after showing signs of improvement in May. Outflows from REIT funds also deepened last month."

U.S. Equity Flow Comparisons

Additionally, while outflows from U.S. equity funds continued in June, European equity funds improved "modestly" compared to May, but remained lower than March highs.

"The Morningstar data suggests that the retreat from the US has spilled into bond fund flows, which turned negative in June."

"From January to May, flows were improving for small cap while deteriorating for large caps."

In June, "large cap flows continued to be weak, with deep outflows in place once again. But the improvement we had been seeing in small cap flows ceased, as small cap flows returned to neutral territory."

The divergence between actively managed small-cap and passive small-cap funds and ETF's was a key takeaway from the report.

Calvasina pointed out, "Within small cap, the deterioration was driven by active flows, which took a sharp turn negative. Meanwhile, passive flows to small cap funds stayed positive and actually improved due to strong inflows to ETFs."

Growth Vs. Value

Morningstar - June Fund Performance

Investor Takeaway

It appears that in June investors were concerned about how to reposition portfolios for the likely short-term interest rate hikes which have been signaled by Fed Chair Janet Yellen, with inflows to most U.S. equity and bond funds slowing up, or showing a negative reversal.

The outflows in real estate, utilities and bond funds highlight investor concerns.