Investor Allocations_Lessons from 2024_ Steady rise in US holdings; cyclicals and the UK in vogue in Europe

Summary of Key Points from the Conference Call Industry Overview - Global Equity Market Performance: Global equities, represented by the FTSE All World index, achieved a return of over 20% for the second consecutive year in 2024, primarily driven by the US market and the technology sector [1][8][17]. Core Insights - US Market Dominance: The US equity funds led global fund inflows, attracting approximately USD 305 billion out of a total of USD 804 billion in global equity fund inflows for 2024. In contrast, European equity funds experienced significant outflows of around 10% [1][18][8]. - Sector Rotation Trends: Global funds have been rotating into US equities, with a notable increase in allocations to cyclical sectors in Europe, particularly Industrials and Financials, which saw a 1.9 percentage point increase in the last four months [4][8][41]. - Caution in Technology Sector: There are early signs of caution among global funds regarding the IT sector, as holdings have slightly decreased relative to benchmark weights, coinciding with high valuations (PB ratio around 7.0x) [3][31][25]. Regional Insights - European Market Dynamics: European funds have shifted focus towards cyclical sectors while showing a preference for UK equities over Germany and France. UK corporates are expected to benefit from a stronger dollar due to their high overseas sales exposure [5][43][41]. - Emerging Markets Struggles: Emerging market funds recorded a marginal outflow of 1.3%, indicating a challenging environment compared to the robust inflows in the US [18][8]. Additional Observations - ETF vs Non-ETF Flows: Inflows into equity ETFs surpassed those into non-ETFs, highlighting a growing trend towards passive investment strategies [19][8]. - Behavioral Finance Considerations: The report discusses the influence of investor sentiment, suggesting that fear and greed play significant roles in market movements, which can be tracked through fund positioning data [45][46]. Conclusion - Outlook for 2025: The momentum in equity fund inflows, particularly towards US equities, is expected to continue into 2025, while European markets may face ongoing pressure [1][8][18]. The cautious stance towards the technology sector and the preference for cyclical sectors in Europe indicate a strategic shift in investment focus [4][31].