Stock ETFs See Inflows as Investors Flee Mutual Funds After Crisis

ETF Trends

A popular article making the rounds this week is a story from Bloomberg about how U.S. investors have missed nearly $200 billion of stock gains since 2009 as they avoid the market after the financial crisis.

However, in ETFs, the buying patterns tell a different story. Yes, bond ETFs have been popular this year with many nervous investors opting for safety and avoiding stocks. In the U.S., taxable bond ETFs have gathered $48 billion year to date through November, according to Morningstar.

However, ETF investors haven’t abandoned stocks. U.S. equity ETFs have taken in $30.2 billion so far in 2012, sector stock ETFs have gathered $27.7 billion and international equity ETFs have pulled in $31.9 billion.

According to the Bloomberg story, Americans missed out on almost $200 billion in stock gains as investors pulled money out of the bull rally. Since March 2009, the average allocation to stocks in retirement funds fell 0.5%, whereas the allocations typically rose 8.2% in rallies since 1990.

“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Wells Capital Management, said in the Bloomberg article. “There’s just so much evidence of this recovery broadening.” [2012 was the Year of the Bond ETF]

Yet ETF flows are painting a different picture than what’s happening in traditional mutual funds. For example, stock mutual funds have seen net outflows of $122.5 billion year to date, according to the Investment Company Institute.

“It’s helpful to think about ETFs as the recipient of ‘net new’ assets when they first come into a non-qualified retirement plan account,” Josh Brown, the Reformed Broker, postulated. “This is what the younger class of investors are doing as they approach portfolio construction. Mutual fund flow data, in essence, becomes more of a lens with which to view the activity of the retiring Boomers and the previous generation.”

For more information on the equities markets, visit our S&P 500 category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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