The “AI Disruption” fear is reshaping capital flows in real-time.
U.S. equity funds saw demand cool significantly in the week ending Feb 4, attracting just $5.58 billion—a nearly 48% drop from the prior week. The slowdown was driven by a sharp rotation out of software stocks, spooked by the launch of Anthropic’s new legal plug-in, which reignited fears that generative AI will cannibalize traditional SaaS models.
🔄 THE GREAT ROTATION: Investors are fleeing “bits” and buying “atoms.”
- Tech Exodus: The technology sector saw a sharp $2.34 billion outflow.
- Real Assets: Conversely, capital poured into Industrials ($2.11 billion) and Metals & Mining ($1.44 billion).
- Size Matters: Safety was key—Large-Caps saw inflows ($1.1B), while Mid-Caps and Small-Caps faced combined outflows of >$3.2 billion.
🛡️ FLIGHT TO SAFETY: While equities wobbled, Fixed Income and Cash roared.
- Bond Boom: U.S. bond funds attracted $11.11 billion (5th straight week of inflows). Notably, Investment-Grade funds saw their biggest inflow since 2022 ($6.34 billion).
- Cash is King: Money Market funds swallowed a massive $83.09 billion—the largest haul since early December—signaling a significant move to the sidelines.
💡 ANALYST TAKEAWAY: The market is expressing a specific view: “AI is dangerous for Software earnings, but good for Hardware earnings.” While Super Micro Computer and Eli Lilly provided isolated support, the broader flow data suggests a defensive crouch. Investors are parking cash in money markets and locking in yields with investment-grade bonds, waiting to see which software models survive the next wave of AI disruption.
👇 Allocators: Is the rotation into Industrials/Mining a short-term hedge, or the start of a structural commodity super-cycle?