Exchange Traded Fund
The persistent negative investment flows at U.S. listed mutual funds specializing in domestic stocks is one of the most important long-term trends catalyzed by the Financial Crisis. AUM has dropped by $473 billion since January 2007 despite the S&P 500 Index’s essentially flat performance over this period. The news is no better since the beginning of 2012 – despite the ongoing rally in domestic equities – with $6.8 billion of further outflows year to date. In today’s note Nic Colas, of ConvergEx analyzes what will reverse this trend along two vectors: the desire and ability of individuals to invest. The rally in risk assets, along with declining actual volatility, is the best hope for a reversal in money flow trends. Offsetting that factor are continued stresses on household budgets and consumer psychology combined with problematic demographic trends. Bottom line: domestic money flows have likely become more economically sensitive than in previous cycles.
When the VIX is low it’s time to GO.