As trading opens on another nervous week on Wall Street, mainstream investors are casting their votes on prospects by racing out of mutual funds that invest in stocks long-term.
In the week heading into the four straight days of 400-point movements in the Dow Jones Industrial Average that was sparked by the first-ever downgrade of U.S. debt, investors pulled $10.4 billion out of domestic equity funds, according to the Investment Company Institute. Worldwide, $13.0 billion was pulled out of equity funds.
Since the start of May, $61.4 billion has been pulled from domestic equity funds, by far the biggest driver of the worldwide pullout of $64.3 billion from all stock funds, globally.
That compares to $18.4 billion that had flowed in to domestic stock funds in the first four months of the year. Through April 30, $41.6 billion had flowed into stock funds, worldwide.
But the outflows hit $20 billion in each of June and July and ratcheted up to $10.4 billion in just one week, the week ending August 3.
With the Dow Jones Industrial Average struggling to stay above 11,000, ICI will report the outflux for the week ending August 10 in the middle of this week. The Dow had been above 12,000 as recently as August 2.
The ICI numbers are in keeping with research released Friday by Strategic Insight that showed investors are taking money out of U.S. bond and stock mutual funds because of increasing economic uncertainty.
U.S. mutual fund investors redeemed an estimated $16 billion in cash out of U.S. stock and bond mutual funds in July 2011 (excluding ETFs and funds underlying variable annuities), reported Strategic Insight. July redemptions equaled about 0.2% of assets held in stock and bond funds.
In the first week of August, Strategic Insight estimates that stock fund net redemptions equaled about 0.3% of the more than $6 trillion held in equity funds. In addition, the volatility over the past week may have resulted in further net withdrawals from stock mutual funds of about 0.5%, according to Strategic Insight.
Nonetheless, Strategic Insight called these rations “reassuring” since just $3 to $5 out of $1,000 invested in stock funds were redeemed during each week of the market’s extreme volatility. The ratios, the research pointed out, are in line with historical redemption patterns over the past 20 years and before.
“Recent market volatility has further eroded investors’ appetite for risk,” said Avi Nachmany , SI’s director of research. “While some short-term redemptions from equity mutual funds during recent weeks and possibly in coming ones are likely, Strategic Insight’s research has shown that redemption spikes after stock market price declines have historically been limited in scope and short-lived.”
July’s fund flows data showed investor’s were losing confidence. In July 2011, bond mutual funds saw net inflows of $8.4 billion, due to strong demand for global and emerging markets bonds, “as investors continued to put money into taxable bond funds in a search for alternatives to low-yielding cash vehicles and as low-risk ways of participating in financial markets.” Through the first seven months of 2011, bond funds saw net inflows of $77 billion, slightly lower than 2010’s pace. Strategic Insight anticipates demand for certain bond funds will persist as yields on cash are so low and stock market anxiety is high.
Demand for stock funds declined in July and redemptions rose in early August. Strategic Insight pointed out that positive inflows into stock ETFs almost matched traditional equity funds’ outflows in July. Excluding ETFs, U.S. equity mutual funds saw net outflows of $23 billion in July, and international/global equity funds saw net outflows of nearly $1 billion. Money-market funds saw net outflows of $113 billion in July, larger than outflows from June, when money funds saw net outflows of $44 billion.
Meanwhile, Strategic Insight said U.S. ETFs in July experienced roughly $15 billion in net inflows. Through the first seven months of 2011, ETFs (including ETNs) saw net inflows of $68.5 billion. At the end of July 2011, US ETF assets stood at $1.104 trillion.