Contrarian alert: Stocks are cool again

U.S. equity funds have highest weekly inflows since June 2008
JUL 18, 2013
As the bull market for U.S. stocks enters its 54th month, investors are finally starting to show some love. U.S. equity funds took in $17 billion of inflows in the week ended July 17, the biggest such intake for stocks since June 2008, according to Bank of America Merrill Lynch research. Overall, equity funds had more than $19 billion of inflows. The shopping spree has already pushed July to the second-biggest sales month for U.S. equity exchange-traded funds and mutual funds. That makes it the biggest sales month since February 2000, according to research firm TrimTabs. “There's been very strong performance and reassurances from the Fed that they are going to keep their liquidity machine going,” said David Santschi, chief executive of TrimTabs. The $151 billion in inflows into equities so this year marks the largest amount since at least 2002, according to Bank of America Merrill Lynch. The jubilation over stocks may not be a reason to get too excited, though, Mr. Santschi said. “Fund investors tend to be bad market timers,” he said. “When buying is extreme, it's usually a bad signal.” Investors rushed into equity markets in January, for example, only to see the average equity fund return 0.8% in February, Mr. Santschi said. The vast majority of last week's surge came through ETFs, which have been eating open-end mutual funds' lunch this year. Equity ETFs had $16.3 billion of inflows for the week, while open-end equity mutual funds brought in $3.5 billion. For the year, equity ETFs have had more than $101 billion in inflows, more than double the amount that has gone into open-end equity mutual funds. On the flip side of the portfolio, investors have slowed their exit from bond funds. After shedding a near-record $67.9 billion last month, bond ETFs and mutual funds have lost just $9.4 billion through the first two weeks of July, according to research firm TrimTabs. “There's been some exhaustion after the record outflows in June and rates have stabilized,” Mr. Santachi said. “What the Fed says and does is also important,” he said. “Last month shows you how much the central bank market manipulation is driving the markets.”

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