Ted's recent post
⇒ Investors Pulled $28.79 Billion drives me to ask a couple of questions, as there is evidently some mechanism operating here which is not apparent to me.
1) OK, there's not much question that there has been a rather sustained outflow from mutual funds for quite some time now. From what I have read, the same goes for individual investors, also leaving the equity markets.
2) Generally speaking, when fewer buyers desire a product, the lack of competitive buyers results in lower prices. (I understand that there may be many exceptions to this mechanism.)
3) The equity markets have obviously been on a tear in the last month or so.
4) This is sometimes dismissed, though, as occurring on "very thin trading" (eg: not a whole lot of customers fighting over the product.)
5) If mutual funds are being forced to sell some part of their holdings to satisfy the large customer withdrawals, and individual buyers are supposedly also fleeing, then:
• HOW does this market go UP??
• WHO is left to buy??
• WHERE is the upward pressure coming from?
Comments
Far too great a tide into fixed income and dividend yielding stocks/blue chips last year - now other stock sectors are doing better YTD. I understand that people are looking for yield, but it swung too far in that direction. The response of not getting any yield was a scramble for anything yieldy.
Trading is, however, still very thin, which can cause more outsized moves. Apparently, volume the other day was at 1999 levels. Still, while thin trading can cause outsized moves up, it can also quite easily create outsized moves in the other direction.
I think you've lost a significant portion of individual investors for a long time. Some will certainly come back, but I still think many will not for a while.
ETF inflows have been taking up some of the slack from mutual fund outflows:
Through the first 11 months of the year {2011}, total inflows into exchange-traded products stood at about $101.4 billion.
http://etfdb.com/2011/where-the-etf-money-is-flowing-the-answer-might-surprise-you/
From Ted's link: "For all of 2011, stock funds hemorrhaged $130.32 billion" and "Investors pulled $28.79 billion from stocks funds in December". So 130b - 29b = roughly 101b for the first 11 months.
That works out damn near even with your 101b "first 11 months" number. It helps to explain the increase in volatility since it's much easier to go in and out of the ETF side, and also makes me wonder how many investors are actually "leaving the market".
Thanks!
Lots of money went into fixed income, as you mention above, because of a desire for yield and the belief of safety - while it varies depending, I agree on the potential risk. Yield is like anything else - everyone ran in that direction...to a point and we may be near that point.
I own MLPs both as a yield play and an asset play, but otherwise stayed away from the hunt for yield because it was apparent that everyone was going to be there and it was going to be another instance of having to time the change in sentiment, which I'm increasingly tired of.
ICI does separate foreign fund inflows/outflows.
Hope everyone is doing well.
Individual investors are still pulling out. This includes 401K type pension monies. At the same time, many folks are buying both for dividends AND as a store of value. This category includes some huge piles of money. This is in light of the Fed, in recent months, saying they would do whatever necessary to ensure economic recovery (WTFever) and meaning they would go QE3, 4, 5 . . .nth if needed.
So, the fed has said, 'party on', and equities seem to be one of the safer bets. Lot's of money has been piling into the nasdaq and tech. Check the R2000 for a fast money giggle play. Staid money is going with dividends. You see them changing the 15% tax rate soon? Right. When all they're serving up is lemons, make lemon flavored cocktails. [I've never had a lemon flavored drink, but would guess that lemon juice, sugar, a dash of salt, and most any alcoholic beverage known to man would work- vodka, rum, tequila, gin, bourbon].
Joe, is this going to end well or badly? WTF knows. I don't. I just look at the odds of them juicing us back to prosperity (10%), having the finanical system meltdown (30%), the whole steeenking planet mired in The Great Austerity for another 10 years or so in some sort of flatline nightmare (60%).
I hope for 1, guard against 2 and I plan for 3.
peace,
rono
I think people have to pick their spots and have a longer-term view on some themes, asset classes, etc, because I think there are longer-term stories out there that are going to take a while to play out, but in the meantime, these assets are likely going to be in and out of favor on a number of occasions as the story plays out, possibly over years.
I think this is true with emerging markets. While I reduced my EM holdings a year and a half ago or so, I still maintained a pretty large EM allocation. In december/early January, I started ramping up EM again, although in a more diversified manner than the Asia-centric focus I'd previously had. I think there's a lot of interesting companies I've looked at in Brazil, and many of them are still at least moderately below their highs.
I'm not saying anything against market timing and I think a great deal of many investment decisions revolve around timing, but I just think large scale market timing is too difficult in this market, and having a portion of one's portfolio with a long-term view and a more "opportunistic" portion allows one to still be able to be comfortable with the ups and downs of what they view as longer-term themes while taking advantage of opportunities when they present themselves. It's not easy either; I've often said investing will not get any easier over the next decade - but I think it's less stressful.
I did take a little bit off the table on Friday, as it seemed reasonable to do so, but it will likely be reinvested in a fairly short period, and I continue to look for both fund additions and single names in both US and other countries. I remain concerned about inflation and continue to invest with that - to at least a moderate degree - with that in mind.
As for emerging markets, I think there are some staples-y names that did okay last year - Wal-Mart De Mexico, Coca-Cola FEMSA and the ECON etf, among others. While these won't likely do as well on an EM run, they may present low-key ways to be in EM. There's also the DEM etf and HILO etfs, which are more moderate risk.
I think there are certainly some opportunities in Europe, such as Tesco, which Buffett recently added to. While I'm not interested in Tesco, I do think what they did in Korea with their virtual markets (people walk up to a large, lit-up wall with pictures of all sorts of food items in subway stations and click the QR codes with their phones next to each item to order their groceries and have them delivered, creating virtual stores with very little space.
You can see a case study video here:
Buffett/Tesco: http://seekingalpha.com/article/340441-having-upped-his-stake-buffett-is-expecting-tesco-to-start-the-fight-back?source=yahoo
"In the global search for yield, four principal areas of opportunity stand out. First is USD denominated Emerging Market debt. While local currency EM debt became a crowded trade (currently being unwound), the same is not the case for USD debt. Investors access better sovereign balance sheets at a significant yield pick up over UST. Second, infrastructure investment is likely to grow significantly in both the OECD and EM while offering private capital a rare combination of duration and yield.
Two other opportunities include US corporate spread product, both high yield and floating rate bank loans, which have been sold off heavily and yet offer attractive yield and exposure to the US corporate sector, the most fundamentally sound segment of the market. Given the outlook for a strong dollar, weak growth and EM stagflation, spread product looks more appealing than straight equity. Finally, the long end of the UST curve remains attractive with the Fed committed to be a significant buyer of new paper thru June while the economic, political and investor backdrop remains favorable. The 30yr UST bond could retest its 2008 yield low of 2.5%."
http://www.huffingtonpost.com/jay-pelosky/post_2510_b_994172.html
Take care.