This article highlights capital flows data available from S&P Global Issuer Solutions. For more information on this and other Issuer Solutions products, please contact Christopher Blake, executive director, at christopher.blake@spglobal.com.

Institutions continued to sell stocks in January, while retail investors, hedge funds, and index and exchange-traded funds were buyers, as a modest stock market rally took root in the first month of 2023.

Selling by retail investors, however, has outpaced that of hedge funds over the past 12 months as bullish views of the market appear to have shifted between the two groups.

Institutions

Institutional investors, by far the biggest seller in the market over the past year, saw total outflows from the stock market of more than $19 billion in January, according to the latest S&P Global Market Intelligence data. Institutions divested more than $353 billion in the 12 months to the end of January, roughly 10 times the amount that hedge funds and retail investors sold over that stretch.

That selling, though, showed signs of slowing in January. Weekly divestments by institutions grew by an average of just over 1% during the month, down from October 2022, when the volume of stocks sold by institutional investors grew by a weekly average of about 4.6%, the data shows.

"Our data has shown a decreasing magnitude of selling since mid-November, though the trend of being the largest sellers has remained relatively consistent," said Christopher Blake, executive director of S&P Global Issuer Solutions.

Retail

Retail investors bought nearly $4.4 billion as the S&P 500 rallied 6.6% in January after a dismal 2022. The group divested $25.4 billion in the 12 months to the end of January, however.

Hedge funds

Hedge funds, which have divested $10.4 billion over that year-long stretch, invested $1.7 billion in January.

"Hedge funds have been the most volatile of the groups over the past year as far as switching between buying and selling activity," Blake said. "The data does support them taking a more bullish outlook on the market since early November."

While hedge funds deploy multiple different trading strategies, making it difficult to explain movements over any given month, the group is likely betting that a recovery is more likely than a significant recession, or at least betting on that outcome more than other groups.

Sector exposure

Hedge funds appeared to reverse much of their end-of-2022 buying and selling in January, increasing exposure in utilities, for example, by 5.4% in January after reducing exposure in the sector by 4.2% in December 2022.

"The most notable takeaway for hedge funds is the magnitude of reversals over the month," Blake said. "Five out of 10 sectors went in a different direction for the group in January compared to December, and the size of the shift was much larger than any other investor type."

Similarly, retail investors reversed course on their exposure from a month ago in several sectors. For example, they increased their exposure to the real estate sector by 1.2% in January after decreasing by 0.6% in December 2022.

Institutional investors continued to reduce their exposure to energy stocks, even as the sector has significantly outperformed other sectors. The group's exposure to the energy sector fell 1.10% in January after falling 1.12% in December 2022.

"With the strong outperformance last year, I believe institutional activity is starting to lock in the gains from those holdings in order to rotate into other areas of opportunity," Blake said. "Additionally, with institutions facing some capital withdrawals from investors, higher performing holdings can be a good source of capital when needed."

Capital flows for index funds and ETFs in January stayed largely in line with flows in December 2022. The group increased its exposure to consumer discretionary stocks by 0.9% in January, up from 0.3% in December 2022.

Data and insights for this article were compiled by Matthew Albert, Mark Buckles, and Christopher Blake from S&P Global Issuer Solutions.