There were four big takeaways for us in last week’s update from EPFR on U.S. equity funds flows. First, passive retail flows to U.S. equity funds have been solid in recent weeks, suggesting to us that retail investors have been helping to support the rally in U.S. equities to start the year.
Second, when we zoom out, we see that flows to U.S. equity funds as a whole have been choppy in recent weeks, though flows to global equity funds have been strong. We see the former as a headwind to U.S. equity market performance and the latter as a tailwind given the heavy market cap representation of the U.S. in global benchmarks.
Third, funds flows are showing a slight improvement for Western European equity funds, pointing to the possibility that some geographic rotation was occurring within the global equity community as 2025 wound down and 2026 began. We will be keeping a close eye on this data, along with investor conversations, to gauge whether a new “Sell America” trade may be returning to the equity market. This is an issue that we have seen as a key risk/headwind to monitor and one that could reasonably be viewed as having grown/strengthened in the aftermath of recent geopolitical and central bank developments (though RBC’s Rates Strategy team has argued that recent events related to the Fed can be viewed as actually having strengthened perceptions of Fed independence).
Fourth, at the sector level we note improving flows for Financials and Industrials, two of the cyclical workhorses of the U.S. equity market, along with continued strength in Energy and Materials/Commodities funds.
Overall, we think these trends in funds flow data highlight the complex dynamics underpinning U.S. equities today – renewed and growing optimism on the U.S. economy, but within the context of a global investor community that has become more open to geographically diversifying their equity exposure and has been presented with some new reasons to potentially do so as the new year has gotten underway.