By David Berman
The next time you try to make a well-timed move into, or out of, a mutual fund, keep in mind that academics have a term for people like us: dumb money.
That’s because evidence suggests that little investors like us have a tendency to get wrapped up in the news, pulling the plug on equities when the stock market has already bottomed out and jumping into stocks when they are near a peak, dooming ourselves to poor returns.
But that’s why strategists remain interested in mutual fund flows – and what’s interesting is that, despite all the fretting over the steep rebound in the stock market over the past year, fund flows suggest that mutual fund investors remain in defensive mode, preferring bonds over stocks.
George Vasic, strategist at UBS, has the latest numbers on Canadian investors. In January, long-term mutual funds recorded net inflows – meaning that more money came into funds than went out. But most of this incoming cash went into relatively safe balanced funds ($2.3 billion) and bond funds ($807 million). By comparison, equity funds recorded an inflow of just $30 million.
The situation is similar in the United States. There, the Investment Company Institute reported last week that long-term mutual funds recorded their 47th straight week of net inflows in the first week of February – but bond funds enjoyed the biggest gains, while equity funds suffered net outflows of cash.
This conforms to 2009 trends as well, suggesting that investors who were burned during the terrible stock market downturn of 2008 and early 2009 remain wary about joining this bull market. Of course, the recent data also suggest that bonds might be looking a little frothy these days.
