May Flash Flows: Feeling the Heat


Head of SPDR Americas Research

Elevated cross-asset volatility and shifting macro forces have created a more complex market environment in 2022, leading to a shift in buying behavior. Bond ETFs posted their second best flows ever, and as a result of subdued equity flows, the rolling three-month differential between stock and bond flows has fallen significantly.

As a result of the multiple dimensions of risks converging on top of one another, equities are down significantly this year. As of right now 65% of all global stocks are trading in a bear market, even after the best weekly rally in 18 months during the last week of May.1

The complexity of this current environment can be quantified by comparing current implied volatility levels; as the average percentile rank for measures of implied equity, as well as bond, currency, and oil volatility are all above the 90th percentile – reinforcing how widespread risks have become.2

These cross-asset risks pressuring markets and the traditional portfolio got me thinking about one of my favorite scenes from the thrilling 1995 bank heist movie, Heat and the famous quote about how the “action is the juice”.

This turn of phrase couldn’t be more appropriate when putting the recent bout of market volatility in perspective. Risk assets earn a premium for a reason. The action (volatility) provides the juice (returns). As a result, without any volatility premium, risk assets like stocks and credit would essentially behave like, and earn, the risk-free rate.

Flow trends reflect a lack of risk-taking by investors amid this uptick in action and cross-asset volatility.

Change in Behavior

Stock funds have outpaced bond funds by $25 billion over the past three months. However, over the past two months bond inflows have been greater than equity inflows, as equity sentiment has slowed and flows into fixed income exposures surged. In fact, May’s $34 billion of bond inflows ranks second all-time and is three times greater than bond funds’ historical median level.

Equities had a below average $38 billion of inflows in May. Yet, after bearing the brunt of the outflows in April, US equity funds led all geographic regions in May. US-focused exposures took in $36 billion last month, a $60 billion difference from April’s $27 billion of outflows. Non-US flows were dragged lower by over $1 billion of outflows from global and regional equity focused ETFs.

Given this change in buying behavior, the rolling three-month fund flow differential between stocks and bonds has fallen. It still favors equities, but is now in the 49th percentile, at $21 billion. A few months ago, the difference was over $150 billion, and it has been above the 80th percentile for seven consecutive months, as shown below.

Rolling Three-Month Equity Minus Bond Flow Difference

Rolling Three-Month Equity Minus Bond Flow Difference

The reduction in sentiment can also be felt by the overall lack of investment. While not all investors have de-risked, many have stopped allocating capital for the moment – hesitant to make a move amid the action. The percentage of funds with inflows in May compared to the historical median positive fund flow rate is illustrated below. And in every category, all funds are below their median – some significantly so.

Percent of Funds with Inflows by Category

Percent of Funds with Inflows by Category

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1Bloomberg Finance L.P. as of May 31, 2022, based on the MSCI ACWI Index.
2Bloomberg Finance L.P. as of May 31, 2022.
3Bloomberg Finance L.P. as of May 31, 2022, based on the 0.08 years of duration on US 1-3 month Treasury Bills.
4Bloomberg Finance L.P. as of May 31, 2022, based on the -17% correlation between US 1-3 month Treasury Bills and the S&P 500 Index.


A market-capitalization-weighted stock market index that measures the stock performance of the companies in developed and emerging markets.

S&P 500® Index
A market-capitalization-weighted stock market index that measures the stock performance of the 500 largest publicly traded companies in the United States.

Characterized by lower price levels relative to fundamentals, such as earnings.

Originally Posted June 2, 2022 – May Flash Flows: Feeling the Heat


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