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The rate of selling by institutional investors continued to slow at the end of 2022 with the group decreasing exposure to equities by $9 billion in December.
This follows outflows of $25 billion in the prior month and $48 billion in October 2022. Total outflows for institutional investors for the year ended at more than $379 billion.
Retail investors divested aggressively in December 2022, bringing year-to-date net outflows to more than $8.7 billion, following a net-buying period through November. They finished the year with two straight months of outflows after being the most bullish group throughout 2022.
Hedge funds used the opportunity to pick up shares and position themselves for 2023.
From a sector perspective, energy was the only sector to finish the year in positive territory in 2022. Consumer-focused sectors had the largest declines for the year as inflation remained a key headwind. Significant shifts in sector performance throughout 2022 provided an opportunity for institutional investors to buy into some beaten-down areas in December.
Hedge funds had an opportunity to harvest tax losses and redeploy capital into better-performing areas. Retail investors chased the gains in energy while decreasing exposure elsewhere.
Institutional investors had one of their most bullish months of 2022
Institutional investors increased exposure to five sectors over the month, most aggressively rotating capital into utilities, with a 0.7% increase in holdings and consumer staples at 0.3%. This buying follows additional central bank activity as the Fed raised interest rates an additional 50 basis points in December. Institutional investors most aggressively sold energy, shedding -1.1% of holdings, and financials with a 0.4% decline over the month. The activity in energy may be related to profit-taking as the sector was a notable outperformer in 2022, with the S&P 500 energy sector rising 59% in 2022.
Hedge funds bet on a recovery to begin 2023
Hedge funds most aggressively added to real estate, up 5.4% in holdings, communication services with a 5.3% rise and information technology holdings, growing 3.4% over the month. All of these sectors underperformed in 2022, including a 40.4% slide by the S&P 500 communication services sector.
Hedge funds appear to be buying during the weakness and may be expecting a turnaround in the new year. In December, the group reduced exposure to utilities by 4.2% and consumer staples by 2.9%. This selling may be related to profit-taking activity as both sectors weathered the storm relatively well in 2022.
Retail investors rotated out of equities in December 2022
Retail investors were sellers in 10 of the 11 sectors in this analysis, most aggressively rotating capital out of utilities and communication services each by 1.0% of holdings. The group was a net buyer of energy, up 0.2% on the month, buying into the strength of the top-performing sector.
Throughout most of the year, the retail group was the only segment to have net inflows. The recent selling activity in December, however, pushed their cumulative 2022 flows into negative territory of about $8.74 billion.
Data and insights for this article were compiled by Matthew Albert, Mark Buckles, and Christopher Blake from S&P Global Issuer Solutions.