Overseas Investors Buying U.S. Stocks Again

After four straight years of pulling money out, foreign investors have invested $66.4 billion into the U.S. stock market through September, the “biggest buying spree since 2012,” according to a recent article in The Wall Street Journal (data from Deutsche Bank). “And there are signs that foreigners aren’t done buying,” the article says, noting that a recent survey by Bank of America Merrill Lynch showed that allocations to U.S. equities by global fund managers rose… Read More

Investors May View Bonds as the Lesser of Two Evils

Investors seem to be moving away from stocks and toward bonds, reversing a historic tendency to gravitate to the “hottest” asset, according to a recent article in The Wall Street Journal. “Fund investors,” it says, “are notorious for buying whatever has recently had hot returns, often right before it goes cold.” It points out, however, that through September 29th, the iShares 20+ Year Treasury Bond ETF (which holds government debt maturing between 2036 and 2047)… Read More

U.S. Equity Funds Suffering Extended Run of Outflows

Investors pulled $2.6 billion from U.S. stock funds for the 10th week in a row, according to a recent Bloomberg article (based on data as of August 23rd outlined in a Bank of America Merrill Lynch research paper). In fact, U.S. equity funds have suffered their longest exodus in 13 years. “The outflows are yet more evidence traders are shunning the U.S. in favor of better growth prospects and more stable politics elsewhere,” the article… Read More

Bull Market Can Be Bolstered by Retirement Account Inflow

According to a new book by an MIT economist argues that the efficient market hypothesis is “incomplete and inadequate” when it comes to valuations, says an article appearing last month in Barron’s. In his book, titled Adaptive Market, Financial Evolution at the Speed of Thought, behavioral finance authority Andrew Lo argues that market forces other than investor buying and selling behavior (based on corporate earnings profits) — such as increased demand from retirement funds– can… Read More

Biggest Small Cap Outflow in a Decade

Small-caps have seen the biggest outflow in 10 years, according to a recent Bloomberg article. The article says that after being “spooked by the steepest selloff in the domestically focused stocks” since the election, last week investors pulled $3.5 billion from the biggest ETF that tracks the Russell 2000 Index. It adds, “The biggest outflow in 10 years comes less than a month after small caps roared to an all-time high on speculation Trump administration… Read More

Morningstar: Funds Flow and Liquidity Affect Performance

Two factors that can affect a fund’s performance are the level of fund inflows and the trading impact of that inflow, explains Morningstar’s Russel Kinnel in a recent article. For most funds, writes Kinnel, “the ideal level of money coming in is a small positive inflow. It gives the managers some money to pursue new ideas with but doesn’t force them into significant selling or buying.” Kinnel points out that a large inflow can be… Read More

Active Fund Performance Improved in Recent Months

Morningstar data shows that, in February, actively managed mutual funds posted their first month of positive net inflows since April 2015, according to an article in The Wall Street Journal. There is optimism among investors, the article says, that “conditions are right for active managers’ resurgence to continue, eventually slowing the flow of money out of actively managed funds into lower-cost index-tracking funds, a trend that hounded many of them in recent years.” While investors… Read More

How Will Increasing Passive Investment Affect Market Efficiency?

Writing for Bloomberg View, Stony Brook professor Noah Smith asks, “As passive [investing] takes over more and more of the asset-management universe, will the market become more efficient or less?” To get there, he begins by noting the “stunning” and ongoing “shift from active to passive investment management” may be “the biggest story in the finance industry during the past decade.” The graph below illustrates the change. He suggests that the development may result in… Read More

Why The “Great Rotation” May Not Be As Bullish As You Think

The “Great Rotation” — the expected move that investors will, at some point, make from bonds to back to equities — has been used as a reason to be bullish on stocks. But Mark Hulbert says that reasoning may be flawed. “I suppose it is conceivable. But a careful review of historical fund patterns doesn’t provide much support for this so-called Great Rotation argument,” Hulbert writes for MarketWatch. He says that at the end of… Read More

Zweig: Fund Flow Lessons Are Complicated

About $66 billion has flowed into stock funds and exchange-traded funds this year, leading some to say that it’s a contrarian sign to sell stocks. But on The Wall Street Journal’s Total Return blog, Jason Zweig says it’s more complicated than that. “After all, $66 billion is less than 1% of total assets at stock funds and ETFs,” writes Zweig. “A 1% shift in one month is interesting, and it could turn out to be… Read More