Thursday, February 14, 2013

Strong equity fund inflows




Domestic equity funds experienced their largest monthly inflow in the past six years, according to preliminary figures tallied by the Investment Company Institute (top chart). This follows six years during which equity funds experienced huge and almost relentless outflows. Has the tide finally turned? Are investors now finally becoming bullish after four years of strong equity gains? Perhaps, but if this is the beginning of the return of bullish sentiment, it likely has a long way to go before it runs out of gas.

15 comments:

Cabodog said...

For the last several weeks, my gut's been saying the market will be moving higher.

Gloeschi said...

Last 3 years of outflows meant rising stock prices. Are you suggesting that inflows... also mean rising stock prices?

Kos said...

This data is encouraging however I wish it contained more than six years of data. 20+ preferable to truly grasp a historical perspective.

Scott Grannis said...

My interpretation if this: stocks rose despite massive equity fund outflows because the market was always expecting things to get worse and they didn't. It was a "reluctant" rally. The outflows were classic signs of a pessimistic market and rising equity prices were therefore a sign of a market climbing walls of worry.

We may be entering a new phase now where sentiment begins to become a little positive. That can propel prices higher. But we are still years away from a market that has become too exuberant.

steve said...

or it could mean that the bulk of investors are buying the top-as usual

William said...

Scott - Continued excellent analysis of the economy and markets.

Looking back on my long career in following the equity markets, my biggest mistake in the 1980s and 1990s was paying to much attention to the endless concerns and worries of the investing public. Trying to time the next correction or bear market.

The famous speculator of the 1920s, Jesse Livermore, said: "It was never my thinking that made big money for me; it was my sitting. It is the big swing that makes big money for you."

steve said...

jesse livermore also shot himself in the head after losing his entire fortune for the fifth or sixth time, presumably by "just sitting". just saying...

Benjamin said...

Gotta believe we are still in first or second leg of a secular, long-term rally.

BTW, has anyone noticed that the economy, equities and property markets all picked up when the Fed moved to open-ended QE?

50 years from now economists will still be arguing if it was the Fed's open-ended QE program at $85 billion monthly that did the trick. They will argue based on their political beliefs, not the evidence.

I say it helped a lot.

Doug said...

Scott have you ever looked at the equity ETF statistics? The question I am trying to answer is how much equity mutual fund flows are under/over stated due to a shift away from mutual funds to ETFs.

Using that same site you linked your data from there is a section with some information on domestic equity ETFs. Dec 2011 to Dec 2012 there was an increase in assets of about $145b. They don't break out the new issuance by equity vs. fixed income so there might not be enough data to distinguish between new money buying vs. asset appreciation from the increasing prices from the market rally.

I agree with your premise that money is returning to equities but wonder if equity mutual fund flows actually understate the amount of money returning to equity markets due to the increased popularity of ETFs.

Scott Grannis said...

ETFs are mutual funds, and so I am pretty sure they are included in the ICI stats,

Mike Eliason said...

I'm curious what you think about the current market valuation as a percentage of GDP. Seems like we're near 100% and this suggests a 3.5% return over the next 8 years.

http://www.gurufocus.com/stock-market-valuations.php

steve said...

ETFs are mutual funds, and so I am pretty sure they are included in the ICI stats

This is incorrect. ETF's are most def NOT MF's and are not included in ici's data. moreover, doug's point is sagacious. funds flows as reported by ici and incomplete and can be misleading.

Flow5 said...

As a kid I used to live across the street from Children's Beach in La Jolla.

Check out my comments under: "Why Fed policy is hurting the economy"

Dr William J McKibbin said...

Let's face it, investors are escaping bonds and cash for stocks...

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