Investors May View Bonds as the Lesser of Two Evils

Investors seem to be moving away from stocks and toward bonds, reversing a historic tendency to gravitate to the “hottest” asset, according to a recent article in The Wall Street Journal. “Fund investors,” it says, “are notorious for buying whatever has recently had hot returns, often right before it goes cold.” It points out, however, that through September 29th, the iShares 20+ Year Treasury Bond ETF (which holds government debt maturing between 2036 and 2047) has had the “strongest monthly, quarterly and year-to-date influx of money in its 15-year history.” Investors are buying into bond funds, the article says, because […]

U.S. Equity Funds Suffering Extended Run of Outflows

Investors pulled $2.6 billion from U.S. stock funds for the 10th week in a row, according to a recent Bloomberg article (based on data as of August 23rd outlined in a Bank of America Merrill Lynch research paper). In fact, U.S. equity funds have suffered their longest exodus in 13 years. “The outflows are yet more evidence traders are shunning the U.S. in favor of better growth prospects and more stable politics elsewhere,” the article says. Increasing doubt around the likelihood of policy change in Washington has exacerbated the trend, the article argues, turning attention and favor toward European equities. […]

Bull Market Can Be Bolstered by Retirement Account Inflow

According to a new book by an MIT economist argues that the efficient market hypothesis is “incomplete and inadequate” when it comes to valuations, says an article appearing last month in Barron’s. In his book, titled Adaptive Market, Financial Evolution at the Speed of Thought, behavioral finance authority Andrew Lo argues that market forces other than investor buying and selling behavior (based on corporate earnings profits) — such as increased demand from retirement funds– can drive stock valuations over the long term. “Over the long run,” says Lo in a recent interview with MarketWatch, “markets are looking pretty good, because […]

Biggest Small Cap Outflow in a Decade

Small-caps have seen the biggest outflow in 10 years, according to a recent Bloomberg article. The article says that after being “spooked by the steepest selloff in the domestically focused stocks” since the election, last week investors pulled $3.5 billion from the biggest ETF that tracks the Russell 2000 Index. It adds, “The biggest outflow in 10 years comes less than a month after small caps roared to an all-time high on speculation Trump administration policies would supercharge growth in the world’s largest economy.” The small-cap index, the article says, is less liquid than the S&P 500 and more reactive […]

Morningstar: Funds Flow and Liquidity Affect Performance

Two factors that can affect a fund’s performance are the level of fund inflows and the trading impact of that inflow, explains Morningstar’s Russel Kinnel in a recent article. For most funds, writes Kinnel, “the ideal level of money coming in is a small positive inflow. It gives the managers some money to pursue new ideas with but doesn’t force them into significant selling or buying.” Kinnel points out that a large inflow can be problematic because it can be very time consuming for the fund manager and/or can incur high trading costs. Kinnel explains that the “bloat ratio” –which […]