Investors continued to display caution in the second week of the Iran conflict, rotating capital out of U.S. equities and toward non-U.S. developed markets while increasing exposure to energy and agricultural commodities, according to a weekly note from JPMorgan's Delta One Desk.
ETF equity flows were subdued, coming in at negative 1.1 standard deviations over the week, while fixed income attracted inflows at about 1.2 standard deviations. Commodity demand diverged sharply by category: agricultural commodities experienced very strong inflows at 6.9 standard deviations, and energy saw robust inflows at 3.2 standard deviations, a pattern JPMorgan ties to disruptions in the Strait of Hormuz.
Among systematic players, CTAs further trimmed equity leverage over the period and asset managers reduced long exposures in equity futures. Selling pressure in major equity futures was significant, with S&P 500 futures at negative 3.5 standard deviations and Russell 2000 futures at negative 2.1 standard deviations. At the same time, equity futures positions outside of Korea's KOSPI were net bought across global markets last week.
JPMorgan reported that CTAs are positioned close to neutral or modestly long in U.S. equities following continued price weakness. On other asset classes, CTAs are likely short across global fixed income, long across the commodity complex excluding U.S. natural gas, and generally short global foreign exchange versus the dollar.
On an ETF flows basis, the desk recorded $4.3 billion of equity inflows and $15 billion of fixed income inflows. Currency and multi-asset categories saw near-average inflows. Commodity ETFs posted $1.5 billion of outflows, equivalent to negative 1.3 standard deviations for the week.
A large model rebalance executed by BlackRock materially distorted flows across several categories, JPMorgan noted. That rebalance was associated with rotations out of U.S. equities, emerging market equities, and gold, and into international developed growth exposures and municipal bonds.
Regionally, investors pulled $10.3 billion from U.S. equities, a move measured at negative 1.7 standard deviations, while directing $15.4 billion into developed markets ex-U.S., equivalent to 2.8 standard deviations. India experienced outflows at negative 3.7 standard deviations, and Mexico also recorded outflows at negative 1.7 standard deviations. South Korea bucked the trend with $0.7 billion of inflows at 1.4 standard deviations, although that was roughly half the inflow seen in each of the prior two weeks when record levels were recorded.
Sector rotation also reflected the risk-off stance. Communication services saw flows at negative 1.5 standard deviations, real estate at negative 1.1 standard deviations, and health care at negative 1.0 standard deviation. Industrials registered $1.9 billion of outflows at negative 3.6 standard deviations, an outcome JPMorgan attributes largely to the model rebalance activity.
Style and factor flows showed one standard deviation of inflows into growth and managed risk categories. By contrast, multi-factor ETFs experienced $1.4 billion of outflows at negative 3.7 standard deviations, a movement the desk ties to the same model rebalance.
Commodity ETFs were generally buoyed, with inflows across most categories except for precious metals. Precious metals saw outflows that were linked to the model rebalance and additional selling pressure in exchange-traded products GLD, SLV, and GLDM.
Institutional positioning in futures was active. Asset managers cut long positions in equity futures, selling S&P 500 futures at negative 3.5 standard deviations and Russell 2000 futures at negative 2.1 standard deviations, while increasing long exposure to VIX futures at 3.6 standard deviations. Leveraged funds reduced shorts in S&P 500 futures at 1.7 standard deviations and increased shorts in VIX futures at negative 2.6 standard deviations. Managed-money activity included purchases of oil and agricultural commodity exposures.
This weekly flow snapshot highlights a market response that combined geopolitical risk, commodity-supply concerns tied to the Strait of Hormuz and technical rebalancing activity, producing significant cross-asset shifts over the period described by JPMorgan's Delta One Desk.