Following Investor Money…
Despite the continued reports of overly bullish investor attitudes towards
equities, the recent trend in mutual fund flow data suggests a more cautious
attitude on the part of investors.Â
For the week ended July 16, AMG data is reporting that equity funds–including
those that invest abroad–witnessed net cash inflows of $852 million, which is a
decline of $1.65 from the prior week. Within this category, investors were net
sellers of mutual funds that invest in global equity markets and net buyers of
mutual funds that invest in the US equity markets. Year to date, equity funds
have reported inflows totaling $46 billion–which is considerably less than the
amount reported during the same period in 1998: (+$92b), 1999 (+$63b) and 2000
(+$156b).
Perhaps the best indicator of lingering caution on the part of investors is
the ongoing trend of inflows into bond funds. To be specific, taxable bond funds
witnessed $1.5 billion of inflows for the week ended July 16. And, so far
this year, investors have committed $95 billion to fixed income funds, which is
dramatically more than the amount reported during the same period in 1998
(+$44b), 1999 (+$20b) and 2000 (-$60b). The fact that investors continue to pile
into bond funds hardly suggests euphoria towards stocks.
The chart below illustrates periods of extreme shifts in mutual fund flows
relative to the Wilshire 5000
(
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PowerRating) and has been a good contrarian
indicator, such as in 2000 and last October.
Edward Allen