Investors worried about the global economy and the Eurozone debt crisis continue to pull money from stock mutual funds at a fast pace.
According to Bloomberg, around $75 billion was taken out of U.S. equity funds over the last four months, more than the $72.8 billion in outflows during the five months following the collapse of the Lehman Brothers.
At the end of August, there was about $1 trillion is U.S.-listed exchange traded funds and notes, an increase of over 30% from August 2010, according to data from National Stock Exchange. Although still a small fraction of mutual fund assets, ETFs continue to grow after the global credit meltdown. More fund firms are entering the business, and active ETFs could represent a key growth area. The higher profile of ETFs has also brought more scrutiny. Regulators are looking into claims leveraged ETFs boost market volatility, while the alleged rogue trader at UBS was connected to the firm’s ETF desk.
In the stock market, bears point out that investors are jumping ship as the S&P 500 came within 2.1% of a bear market while bulls say the current retreat in prices is a perfect buying opportunity. [Stocks Yield More than Bonds]
“When we’re getting close to a market bottom, the phone starts ringing off the hook and our clients want us to sell everything,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp, commented. “Market bottoms are less about an improvement in the fundamental situation, whether the economy or outlook for earnings, and a lot more about getting rid of all the anxious investors.”
“It’s the once burnt, twice shy phenomenon,” Walter “Bucky” Hellwig, manager at BB&T Wealth Management, remarked. “Investors are much less risk tolerant than they have been in the past. You would think that someone would say, ‘I can take a little bit of risk, look at the P/E,’ but they just want to stay on the sidelines.”
Over the last 30 months, $177.7 billion has been funneled out of mutual and exchange traded funds based on U.S. equities. During the first four months of the year, investors added $18.7 billion. Meanwhile, bond funds saw $42.3 billion in inflows from the end of April through July before experiencing weekly outflows in August.
Brian Barish, the Denver-based president of Cambiar Investors LLC, believes the mass pullout in stocks is a bullish signal.
“The five months after Lehman were an epic buying opportunity, yet investors liquidated en masse,” Barish said. “Retail unfortunately tends to time things poorly. I don’t expect the current situation to be all that different.”
Max Chen contributed to this article.