Where Are Investors Allocating Their Capital?
Last week’s fund flow data was
released Monday, and here’s what
investors were doing…
Equities
After putting their money into equity funds
for three consecutive weeks, investors withdrew a total $796 million last
week. Most of these outflows occurred in funds that focused on technology,
aggressive growth companies and European stocks. Meanwhile, equity income, small
cap growth and Japanese equity funds experienced some modest inflows.
Speaking of Japan, I have been noticing a recent trend in the purchase of
Japanese equities by risk-averse institutional investors such as CALPERS,
who are typically very strict about their investment allocations. Could this
mean that Japan’s stock market has finally bottomed?
Bonds
Investors continue to plough into bond funds,
purchasing $1.2 billion worth of taxable bind funds last week. Most importantly,
however, was that of this total, 1.1 billion went into high yield (junk) bonds,
further widening the disconnect between retail investor enthusiasm for this
instrument and equities–historically, the performance of these two instruments
is very highly correlated. International debt funds (especially the high
yielding and risky emerging-market debt funds) also experienced substantial
inflows last week.
Money Markets (cash)
Money market funds witnessed a hefty $46 billion
of outflows last week, most of which came from institutional accounts.
Year to date, investors have sold $8 billion of
equity funds and purchased $38.2 billion of bond funds. And although retail
investors continue their risk-seeking trend by purchasing junk and emerging-market debt, they are still very wary of the stock market, preferring to
allocate their money elsewhere–even if the risk exceeds that of equities.
Conversely, institutional investors are becoming more comfortable with the
current risk rewards offered by the stock market.