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It is amazing. Given those flows you would think market is down this year. But individual investors are not alone. Hedge funds are also underperforming.
Conventional wisdom says there are two scenarios at play here and I waver between which one will prove correct. One is that sooner than later as stocks continue to rise inflows will revert and in a large way back in favor of equities. That is especially so if the great bond bull of the past 10 years shows signs of wear. Regardless of demographics, the fear and greed factor is always in play and at some point investors, regardless of age, won't want to let the equity train leave them further behind.
The other scenario is simply that there has been a seismic shift in investor risk tolerances because of demographics and the baby boomers retiring en masse and stocks will never again gain favor. Personally I favor the first scenario and that is coming from a 65 year old almost entirely in bonds.
...and today will most likely be seen as another opportunity to sell more equity funds. As much as I am what you may call "big picture negative" in many ways, I do think there's a lot of specific areas to like - mobile (I think what a number of companies are doing is fascinating, such as Gemalto - which I don't own - http://www.ft.com/cms/s/0/1bf77e52-f29b-11e1-ac41-00144feabdc0.html), infrastructure (BIP), ag. I am more than respectful of someone's low risk tolerance, but there are options to get *some* lower-risk exposure (in order to maintain some sort of diversification in asset classes) such as the SPLV S&P 500 low-volatility ETF, which also provides a monthly dividend.
Again, I think it really goes back to the concept of financial education in high school - I'm younger, I make mistakes, but I've learned a lot the last 5 years or so - although what I've learned is entirely from experience and from sitting down and going through it and researching. That's really the only investing education that's available to most people - the education they give themselves in it. It's unfortunate.
Reply to @Hiyield007: After 3 or so years, I'm starting to ponder whether the second scenario is a reality for a large portion of the population. I don't think it means that stocks will "never again" gain favor with those who have left the market, but it may take a long while. I think there will be a portion of the older generation who will not be returning to the equity market, and I do question whether there will be the same degree of inflow from younger generations as there will be outflow from older ones. Whether that matters from a performance standpoint - probably not. More just interesting.
There's also a fair amount of people who have probably become very comfortable in fixed income. Catch, for example, continues to do pretty well. Whether fixed income performance will really substantially change anytime soon and whether or not some money will stick there remains to be seen.
Again though, I'm fascinated by the psychology at play. All the discussion of retail chasing markets - they haven't this time and it gets to a point where one has to accept that it does not look like they are going to - outflows from equity funds and into fixed income shows no sign of slowing.
BobC also kind of brought up a good point the other day when talking about inflows to Pimco Total Return: " I'm not saying folks should be putting all their money in bonds now, but since most plan participants have no investment knowledge and are scared of everything having to do with the stock market, PIMCO is where they gravitate, once they see the long-term numbers."
I kinda wonder if people see performance from fixed income and they don't have really any idea about how the fixed income markets work aside from they've done consistently well for a long time. An aspect that I don't even really think about with fixed income inflows - how much of the retail money understands fixed income beyond "seems much safer, look at how well its done for years."
Scott agree with pretty much everything you say especially the last paragraph
>>> I kinda wonder if people see performance from fixed income and they don't have really any idea about how the fixed income markets work aside from they've done consistently well for a long time. An aspect that I don't even really think about with fixed income inflows - how much of the retail money understands fixed income beyond "seems much safer, look at how well its done for years."<<<<<<
And that is why I think if that bond performance falters or goes negative they will run like scared lambs back into equities assuming of course equities keep ticking higher.
Reply to @Hiyield007: Well, if that does happen, they'll go from fixed income to equities at the wrong time and then, if they weren't already upset enough with stocks, they'll be really pissed. They'll be upset at equities and if fixed income isn't doing well either, they'll be upset that that is no longer working "for some reason".
I think the financial industry would be against the second one in some regards, but I really think:
1:) There's a missed opportunity that the psychology of the retail investor in the last few years in particular is not being studied. Instead, we get dopey Smart Money articles that scold and scream "You're MISSING IT!" and really help no one.
2:) Obviously this isn't scientific, but I think the last few years really highlights the need for investor education and I think a more educated class of retail investors will lead to greater stability over time and other benefits to both markets and the economy. How many retail investors would have been interested in Facebook if they understood how to value it instead of just knowing that they "liked" it? As I said in the other post, if schools aren't going to offer it, young people have to educate themselves and I just think there's a fairly large portion who aren't - and as I noted with this link: http://www.zerohedge.com/news/retirement-reality-full-frontal-why-every-30-year-old-must-risk-it-all-be-able-retire
They may want to figure out how to to invest at least at a level they feel comfortable with and start learning if they haven't.
HY and Scott, If the equity markets hold today (3:30pm) and it appears it will; and with a big face slap coming at the close for IG bonds; with the exception of HY and EM bonds, a week or two of today's actions would wake up some folks about bonds. A similar pattern took place between July 25 and August 13; with most IG bond sectors recovering. The bond fund managers are having their share of work today to attempt to determine directions for some bond sectors.
Our house is a reformed equity house, but not anti-equity. Prior to June of 2008, we had always held about 90% equity in various sectors; and, wouldn't you know it, the 10% in bonds was PTTRX. For those who watch and invest for themselves, hopefully with some skill; I do not think that our nearly 100% position in various bonds is far off track from some other retail investors. Our holdings and fund managers are spread far and wide; and this offers some balance to the overall bond holdings. 'Course this does not mean that the majority of the sector couldn't all rollover the wrong way, too.
We find trying to "figure" the bond market to be as complex as any other sector that may be equity related. The right hard calls are attempting to determine the full affects of the perverted nature of the manipulations of the central banks.
I think "foolish" once in awhile; when I read about how much money is being raised by everyone and his brother, be it corporate or government.........with the dollar amounts of bonds being offered. Are any of these folks really going to be able to pay us back ??? Well, yes; I suspect they are hoping, with a cheaper future currency.
It is a tough road today, trying to make a buck; let alone not lose some of it, too.
There are lots of different ways to interpret the data, and ICI has lots of it! YTD, domestic mutual funds saw outflows of 80B, but foreign equity funds had inflows of 17B. Diversification? On the other hand, with equity assets in mutual funds at roughly 5.5T, the 63B of outflows amounts to just over 1% of equity assets -- doesn't seem like we're in the middle of a major allocation shift. Given the strong equity returns of the past few years, how much of the shift should be considered rebalancing?
While I try to be contrarian, I have been thinking about joining the crowd and reducing my stock allocation. The last few years (overall) have been good for stocks and it might be time to take some money off the table.
Reply to @catch22: " Are any of these folks really going to be able to pay us back ??? Well, yes; I suspect they are hoping, with a cheaper future currency. "
Comments
The other scenario is simply that there has been a seismic shift in investor risk tolerances because of demographics and the baby boomers retiring en masse and stocks will never again gain favor. Personally I favor the first scenario and that is coming from a 65 year old almost entirely in bonds.
Again, I think it really goes back to the concept of financial education in high school - I'm younger, I make mistakes, but I've learned a lot the last 5 years or so - although what I've learned is entirely from experience and from sitting down and going through it and researching. That's really the only investing education that's available to most people - the education they give themselves in it. It's unfortunate.
Lastly, in terms of younger people and investing, the reality regarding potential retirement - http://www.zerohedge.com/news/retirement-reality-full-frontal-why-every-30-year-old-must-risk-it-all-be-able-retire
There's also a fair amount of people who have probably become very comfortable in fixed income. Catch, for example, continues to do pretty well. Whether fixed income performance will really substantially change anytime soon and whether or not some money will stick there remains to be seen.
Again though, I'm fascinated by the psychology at play. All the discussion of retail chasing markets - they haven't this time and it gets to a point where one has to accept that it does not look like they are going to - outflows from equity funds and into fixed income shows no sign of slowing.
BobC also kind of brought up a good point the other day when talking about inflows to Pimco Total Return: " I'm not saying folks should be putting all their money in bonds now, but since most plan participants have no investment knowledge and are scared of everything having to do with the stock market, PIMCO is where they gravitate, once they see the long-term numbers."
I kinda wonder if people see performance from fixed income and they don't have really any idea about how the fixed income markets work aside from they've done consistently well for a long time. An aspect that I don't even really think about with fixed income inflows - how much of the retail money understands fixed income beyond "seems much safer, look at how well its done for years."
Scott agree with pretty much everything you say especially the last paragraph
>>> I kinda wonder if people see performance from fixed income and they don't have really any idea about how the fixed income markets work aside from they've done consistently well for a long time. An aspect that I don't even really think about with fixed income inflows - how much of the retail money understands fixed income beyond "seems much safer, look at how well its done for years."<<<<<<
And that is why I think if that bond performance falters or goes negative they will run like scared lambs back into equities assuming of course equities keep ticking higher.
I think the financial industry would be against the second one in some regards, but I really think:
1:) There's a missed opportunity that the psychology of the retail investor in the last few years in particular is not being studied. Instead, we get dopey Smart Money articles that scold and scream "You're MISSING IT!" and really help no one.
2:) Obviously this isn't scientific, but I think the last few years really highlights the need for investor education and I think a more educated class of retail investors will lead to greater stability over time and other benefits to both markets and the economy. How many retail investors would have been interested in Facebook if they understood how to value it instead of just knowing that they "liked" it? As I said in the other post, if schools aren't going to offer it, young people have to educate themselves and I just think there's a fairly large portion who aren't - and as I noted with this link: http://www.zerohedge.com/news/retirement-reality-full-frontal-why-every-30-year-old-must-risk-it-all-be-able-retire
They may want to figure out how to to invest at least at a level they feel comfortable with and start learning if they haven't.
If the equity markets hold today (3:30pm) and it appears it will; and with a big face slap coming at the close for IG bonds; with the exception of HY and EM bonds, a week or two of today's actions would wake up some folks about bonds.
A similar pattern took place between July 25 and August 13; with most IG bond sectors recovering. The bond fund managers are having their share of work today to attempt to determine directions for some bond sectors.
Our house is a reformed equity house, but not anti-equity. Prior to June of 2008, we had always held about 90% equity in various sectors; and, wouldn't you know it, the 10% in bonds was PTTRX. For those who watch and invest for themselves, hopefully with some skill; I do not think that our nearly 100% position in various bonds is far off track from some other retail investors. Our holdings and fund managers are spread far and wide; and this offers some balance to the overall bond holdings. 'Course this does not mean that the majority of the sector couldn't all rollover the wrong way, too.
We find trying to "figure" the bond market to be as complex as any other sector that may be equity related. The right hard calls are attempting to determine the full affects of the perverted nature of the manipulations of the central banks.
I think "foolish" once in awhile; when I read about how much money is being raised by everyone and his brother, be it corporate or government.........with the dollar amounts of bonds being offered. Are any of these folks really going to be able to pay us back ??? Well, yes; I suspect they are hoping, with a cheaper future currency.
It is a tough road today, trying to make a buck; let alone not lose some of it, too.
Take care of yourselves,
Catch
While I try to be contrarian, I have been thinking about joining the crowd and reducing my stock allocation. The last few years (overall) have been good for stocks and it might be time to take some money off the table.
And there's the key. Prepare accordingly.