Much has been made about the perfect market timing that can be derived by the doing the opposite of what the herd, or small investor, is doing. While this contrarian strategy has advocates like Warren Buffett, it's hard to measure and can also be dangerous.
But when a top ETF trend watcher at one of the largest retail investment shops in the country flags a tidal wave of money flow, investors should take notice.
"On our platform alone, we saw an almost 38% increase in just fixed-income ETF flows [in 2011], more than double what we saw in 2010," says Eric Pollackov, managing director of ETF Capital Markets at Charles Schwab. It was a "record year" for bond funds he adds.
But now all that money has suddenly found itself in a different market and a much different mood. With each day stocks post gains this year, the temptation to jump into more risk grows, especially when your bond fund is suddenly ice cold, if not falling.
Case in point, the $14 billion Vanguard Intermediate Bond ETF (BIV) was up 12% last year, but has done nothing in 2012 or even the past five months. Waning volatility and prolonged promises for low rates from the Fed have changed the investing climate this year and it's likely that wave of cash not only marked a top in bonds, but has missed much of the move in stocks this year.
Schwab's 2012 ETF Outlook includes other findings on fund flows that at least in the short term, appear to be mis-timed moves.
Pollackov points out that Commodities ETFs, for example, saw some of the biggest drops in investor demand in 2011, with fund flows dropping 77% from the prior year. Meanwhile, this year, gold, silver, copper and many other commodities are up 10 to 20 percent already.
It is either frustrating or telling, depending on your point of view, but certainly noteworthy.
- Warren Buffett