Credit Suisse On The Wider Rebalancing Flows Ahead Of Month End

Credit Suisse note that “after being down 5.6% MtD (May 19), U.S. equities (SPX proxy) are basically unch. into month end. Current investment themes are evident on a sector level, with Energy (+16% MtD) tripling the performance of the MtD runner-up (Utilities +5%). The Consumer space underperformed, with Staples (-4%) and Discretionary (-5.6%) lagging. Based on the relative MtD performance, our model estimates a small sell of ~$1bn from pension funds that rebalance on a monthly basis. U.S. fixed income (AGG) fared well (+1.2% MtD). Our model estimates a modest sell of $4bn.”

• “For international equities, developed stabilized (MXEA flat), while emerging continued to skid (MXEF -3%). Our model estimates $420mn to sell in developed and $5.5bn to buy in emerging.”
• “In addition to our usual warnings about how actual timing of trades can vary dramatically based on several different factors including market sentiment (both short-term and long-term), asset mix, implementation costs, liquidity events, regularly scheduled cash flows, etc, May 31 is also MSCI’s semi-annual rebalance. Our Index Team Estimates ~$112bn of activity from passive managers (quite the misnomer given the complexities), not to mention flows from active PMs looking to take advantage of the liquidity event.”