“It’s increasingly tricky to understand how investors really feel about the stock market. On the one hand, they are withdrawing assets from equity mutual funds, according to the weekly fund flows data reported by Lipper and other organizations that use this information as a barometer of investor sentiment. That trend has given rise to reports that investors are fleeing stocks and foolishly piling into bond funds. On the other hand, investors continue to plow money into equity-linked exchange-traded funds, or ETFs.
That sounds counterintuitive, since in theory a large-cap stock fund is going to give an investor roughly the same kind of market exposure as an ETF based on the S&P 500 index or other similar broad market barometer. And yet, the pattern repeated itself in the most recent five-day period reported by Lipper, as investors yanked some $4.1 billion from the coffers of equity mutual funds while investing a net $6.3 billion into equity ETFs. That’s the 20th consecutive week in which U.S. equity mutual funds have experienced net withdrawals, a trend that has remained in place regardless of whether major market indexes happen to be gaining ground or falling.
In contrast, the flows into or out of ETFs appear to be more volatile; while during many of those five-day periods investors have continued putting money into ETFs, it hasn’t been as consistent a trend. In mid-September, for instance, ETFs lost assets.
Have investors developed some kind of multiple personality disorder? Or is there a logical explanation for this kind of data? ”
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