What’s Happening With Fund Flows?
For the week ended November 12, AMG data is reporting that equity funds–including
those that invest abroad–posted net cash inflows of $3.5 billion, with most of
the funds going into domestic small cap, aggressive, and large cap growth funds.
Taxable bond funds also reported inflows, totaling $ 353 million for the week
ended November 12. Aggregate inflows for this year however, total $78 billion,
which is dramatically more than the amounts reported during the same period in
1998 (+$58b), 1999 (+$17b) and 2000 (-$66b).
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. Until that time
however, there is still plenty of retail money on the sidelines to buy stocks.
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.
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