Mutual Fund Exodus by the Numbers

Josh here – Nick Colas, Chief Market Strategist at ConvergEx, calculates that investors have left roughly $65 billion in gains on the table by walking away from their equity mutual funds over the last several years.  This is offset by the fact that they may have simply switched some of the money into bond funds, of course.  Even still, pulling $347 billion from stock funds over three years seems like a lot until you consider that they are still holding $5.6 trillion worth.

Some interesting stats from the ConvergEx team below…

***

• Since August 2009, the S&P 500 is up 39.6%. It has had some pullbacks, to be sure, such as the drops in mid-2010, late 2011, and mid-2012. But if you had entered the market on August 28th, 2009 you would not have experienced a loss on your initial investment except for one week in July 2010.

• Over the same period, investors in U.S. stock mutual funds have withdrawn $347.2 billion. The outflows have been persistent to the point of monotonous. Only six of the last 36 months have seen net inflows, the last one in April 2011. The average net monthly outflow has been $9.6 billion.

• The period from January 2007 to July 2009 was almost as bad, with $204.3 billion leaving U.S. stock funds. Yet the flows were not as persistent negative during this period, the worst for domestic stock volatility. Of the 31 months in this period, 10 of them actually saw inflows.

• There are several reasons, in my opinion, for the move out of U.S. stocks funds. Investors have clearly shifted to less-risky investments, a in a moment. There is also likely a demographic aspect to these flows, as recent retirees juggle their portfolios for incremental income rather than outright growth. An estimated half of U.S. stock fund assets sit inside defined-contribution plans such as 401(k)s, after all. And lastly, I am sympathetic to the notion that structure still dealing with some very visible teething pains.

• Exchange Traded Funds now offer investors a competing product to mutual funds, and flows into U.S equity ETFs over the last 3 years amounts to some $93.9 billion according to our friends at www.xtf.com. The fact that ETFs are not widely used in defined contribution plans means that these flows may not be the destination of the money that has left mutual funds, however. In fact, we’ve spoken to ETF sponsors who posit that ETF investors represent a younger demographic than mutual fund holders and therefore the two pools of money have origins in different rivers of capital.

***

Good stuff.