Investors pull money out of bond funds, pour it into equity funds

PUBLISHED : Monday, 04 November, 2013, 1:53pm
UPDATED : Monday, 04 November, 2013, 1:53pm

Investors poured US$54.2 billion into all-equity mutual funds and exchange-traded funds last month, the third-largest inflow on record, data from TrimTabs Investment Research showed on Sunday.

All three of the largest monthly inflows into all-equity funds have occurred this year, and this year’s inflow of US$286 billion into all-equity funds is the biggest since 2000, TrimTabs added.

“When fund investors are as upbeat as they are now, a short-term pullback would not be a surprise,” said David Santschi, chief executive officer at TrimTabs Investment Research.

Fund investors keep dumping bonds, however. Bond funds posted five consecutive monthly outflows for the first time since late 2003.

Outflows have picked up even though the average bond fund was up 1.3 per cent in September and 0.9 per cent last month, TrimTabs said. Bond mutual funds and ETFs redeemed US$13.5 billion last month, almost triple the outflow of US$4.9 billion in September, the firm noted.

When fund investors are as upbeat as they are now, a short-term pullback would not be a surprise
David Santschi, TrimTabs

“We cannot emphasise enough how much recent outflows mark a dramatic shift for the fixed-income world,” Santschi said. Bond funds have not posted five consecutive monthly outflows since August 2003 to December 2003, TrimTabs said. US economic growth slowed last month, while real wages and salaries climbed a scant 0.5 per cent year over year, the research showed.

TrimTabs said its demand indicators suggest the US stock market may struggle to move much higher over the short term but that the longer-term uptrend is secure.

While the S&P 500 is up 23.5 per cent year-to-date, TrimTabs said its indicators do not point to a major sell-off any time soon.

TrimTabs said its Demand Index stood at 77.9 on October 30, up a bit from 73.6 a week earlier (readings above 50 are bullish).

Although the index did not rise much, the firm said it managed to clear the 75 threshold.

The short-term outlook is a lot less favourable, TrimTabs said, noting exchange-traded funds flows suggest stocks will have a tough time moving much higher.

Inflows into leveraged short exchange-traded funds stopped in the past week, which is a cautionary sign from a contrarian perspective, TrimTabs said.