It is funny what one finds when one actually looks at the data behind the headlines, such as in this case the trumpeted amazing return of investors to the US stock market. Because what one does find is that after that one blistering week after the new year, in which wealthy individuals dumped cash they had put aside (for lack of knowledge of what the dividend tax would be in 2013), we now have, for the second week in a row, seen a material outflow from US equity funds as tracked by Lipper, bringing the total two week outflow from the domestic equity sector to some $5.8 billion. Oh, and the great non-rotation out bonds continues with some $8.5 billion pumped into taxable bond funds and $2.3 billion into municipal bonds in the past two weeks.
From the week ended January 16 (source [8]):
[9]
And from the week ended Januar 23 (source [10]):
[11]
"But the bulk of the outflows is from ETF outflows" the purists will say. Why yes, but remember - the only inflows in the period 2009-2012 was courtesy of ETFs. After all that was being paraded non stop to mute out the fact that some $300 billion got pulled out of equity mutual funds: "mutual funds are dinosaurs" we heard over and over. Turns out that is no longer the case. Or maybe it is time for the spin to enter the rinse cycle.
Either way one thing is clear - the cash influx into bond funds has not stopped and will not stop, which means there is no rotation out of bonds and into stocks, and the only rotation is out of marginal money market funds into stocks, which in turn is a function of some residual cash rotation out of TAG accounts which no longer have an infinite FDIC insurance. In other words, the inflows into the non-ETF part of market will end in a week or two tops. At that point one can only hope the ETF bleeding ends or else there will be nothing to offset what will be an overall outflow from equity funds.
From Reuters [10]:
Investors in stock mutual funds continued to favor international stocks while still directing a substantial amount of cash toward U.S. stocks. Mutual funds that specialize in U.S. stocks attracted $1.42 billion, while those that hold international stocks attracted $2.24 billion.
The strong turnout for stock mutual funds again failed to apply to ETFs overall. Stock ETFs had total outflows of $735 million, as investors pulled roughly $3.1 billion from ETFs that hold U.S. stocks. Those that hold international stocks, however, stood out with inflows of $2.35 billion.
Investors continued to pull money out of the SPDR S&P 500 ETF, with $4.36 billion leaving the fund in the latest week.
"Apple is a big holding in the fund, so this could be a vote against Apple," Tjornehoj said. Shares in Apple,, which is the world's most valuable publicly traded company, fell 8 percent on Wednesday after the company recorded quarterly revenue that slightly missed expectations while sales of its iPhone came in weak.
ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.