LIVE MARKETS-BofA clients took a liking to small caps in 2025

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BOFA CLIENTS TOOK A LIKING TO SMALL CAPS IN 2025

BofA Securities equity and quant strategist Jill Carey Hall says that last week, with the S&P 500 index .SPX losing around 1% in a holiday-shortened trading, clients sold U.S. equities for a fifth week in a row, with single stock outflows (-$0.6 billion) offsetting muted ETF inflows (+$0.02 billion).

According to Hall, selling was led by institutional clients. Retail clients also sold for a ninth straight week after buying much of 2025. Hedge funds bought for a third week.

Clients sold stocks in eight of 11 sectors, led by Tech and Consumer Discretionary. Financials, Communication Services and Health Care garnered inflows.

For sector ETFs, Tech and Financials saw the biggest outflows, while Industrials ETFs captured the biggest inflows.

In a 2025 recap, Hall says that stock outflows slowed year-over-year, while ETF inflows increased year-over-year.

"Private clients were record net buyers of US equities in '25, with continued inflows into ETFs (slightly below '24 levels) vs. their smallest-ever net sales of single stocks in our data since '08. Hedge funds were net sellers of both stocks and ETFs and institutional clients' single stock sales offset ETF net buys," writes Hall in her note.

She adds that based on combined stock and ETF inflows, small caps saw record inflows last year. Hall says that small caps "are still underowned by multi-cap investors," and BofA expects them to outperform in 2026.

Corporate client buybacks remained near record levels last year, but were down from 2024's highs.

In terms of sectors last year, she says that clients sold single stocks in 10 of 11 groups, led by Tech (biggest outflows since 2021) and Financials. Materials was the only sector to see single stock inflows.

As for ETFs in 2025, clients bought ETFs across size segments and major styles, with slightly larger inflows into Value vs. Growth.

Consumer Discretionary, Industrials and Materials saw the biggest sector ETF inflows, while Financials, Energy and Tech ETFs suffered the biggest outflows.

(Terence Gabriel)

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