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Lipper produces a monthly set of data on how investment funds flow.

I took a look at this data from 2001 to now. I took the monthly reported figures for equity, bond, and money market funds and added them over time.

Because I couldn't find the absolute level of investment anywhere, the y-axis of the graph below shows the change in investment since January 2001.

(click to enlarge)

A few things are interesting in this chart:

  1. The blue line (equities) seems to change direction at times when buying or selling is a good idea. For example, the bottom of March 2009 was where the blue line stopped dropping and turned around. This is not surprising since the blue line is how much money is going into the asset class, but I was surprised that the line is relatively stable (i.e. it doesn't zig-zag a lot), which may mean it is a more reliable signal.
  2. The red line (bonds) has been rising steadily since the Great Recession started. I don't think this data would directly include government buying from QE programs, but indirectly the "printing of money" will obviously end up in these lines. It is interesting, however, that bonds are where the money largely ends up despite the very low real returns that they provide.
  3. As a % of the total (purple), the equities line hit a high of ~100% in June 2005 (the positive bonds value & negative money market value offset each other). Since then, it steadily dropped to ~30% in March 2009 (what I would call "The Great Bottom"). Today the percentage is at 41%, which is still a far cry from an equities-dominated market.
  4. The total level of investment is also interesting (in purple). You can see that the total amount of money didn't change much from 2001 to mid-2005 - money was just moving into equities from bonds and money market funds. Then the total investment increased until ~2008. Since 2008 the level has been fairly steady, only recently ramping up in the past 6 months or so.

The biggest question is whether the recent strong ramp I mention in #4 is a sign of things to come, similar to what happened in 2003 where the equities line benefited from rotation and an overall increase in investment. I think it is, which means selling all your bond ETFs (LQD, TIP, BND, TLT, AGG) and buying equities (NYSEARCA:SPY).

Source: Buy Equities: The Great Rotation Supported By Lipper Flows Data