What Investor Flows Are Telling Us
For the week ended September 10, AMG data is reporting that equity funds–including
those that invest abroad–posted net cash inflows of $.94 million, which is $4.4
billion less than last week. Within this category,
$833 went into domestic small cap funds and $521 million went into
domestic aggressive growth funds. Year to
date, equity funds have reported inflows totaling $76 billion–which is still
below average considering that during the first half of the year for the past five
years, equity funds have reported inflows of $70 billion.
Taxable bond funds witnessed outflows totaling $1.45 billion for the week
ended September 10. Aggregate inflows for this year however, total $78.5 billion,
which is dramatically more than the amount reported during the same period in
1998 (+$44b), 1999 (+$20b) and 2000 (-$60b).
A sustained trend in outflows from bond funds into stock funds would signal
capitulation by the remaining bearish investors, which, in my view, would then
suggest that caution should be exercised by equity bulls. On the institutional
side (which I discussed on Tuesday), flow data is more neutral than bullish for
equities, as pension stock holdings are now more in line with their historical
avergage.
The chart below illustrates periods of extreme shifts in mutual fund flows
relative to the Wilshire 5000 and has been a good contrarian market
indicator during periods of extreme inflows/outflows, such as in 2000 and last October.
Where Are Investors Putting Their Money?