Jason Zweig tells us that the oft-cited statistic where investors supposedly pulled $70 billion from the stock market this year is not actually a meaningful number – in real life they’ve only pulled half that amount on a net basis.
The real story is that investment vehicle preferences have shifted radically:
So far this year, U.S. stock ETFs have taken in approximately $22.5 billion in net inflows.
When you add those net ETF inflows to the net outflows from U.S. stock mutual funds, the $68 billion in fund-flight cited by most of the commentariat drops to less than $46 billion.
Then consider that “balanced” mutual funds – those hybrid portfolios of stocks and bonds – have attracted more than $20 billion in net inflows so far this year.
According to Morningstar analyst Annette Larson, the average balanced mutual fund (weighted by the size of assets) has 57% of its portfolio in stocks.
That means that the inflows into balanced mutual funds are the equivalent of another $12 billion in equity purchases. That, in turn, would take the effective net outflows from U.S. stocks down to $34 billion.
The ICI data about “equity fund flows” is a very incomplete reading and should be taken with 2 grains of salt and a pinch of cinnamon. The modern investor class gets its exposure through passive indexing ETFs, balanced or asset allocation funds and lifecycle funds. None of these show up in the data as equity funds, all of them hold equities.