How do you make sense of lackluster flows into equity funds amid the longest outperformance for U.S. stocks since the presidency of Richard Nixon?
For Chris Hyzy of U.S. Trust Co. in New York, it’s just another sign that shares have more room to rally.
Except for in 2013, when $157 billion poured into U.S. stocks, investors have stayed skeptical about the five-year advance that created almost $16 trillion of share value and handed American companies 36 percent of the world’s market capitalization. The reluctance reflects memories of the 2008 financial crisis and is a bullish sign, Hyzy said.
“That event alone, plus all the geopolitical risk, is making the retail investor second guess whether or not this is a good time to come back to something that’s perceived to be risky,” Hyzy, the chief investment officer of U.S. Trust, which oversees $380 billion, said on Sept. 4. “You should expect fund flows to be relatively anemic, but still positive, which leads to a much longer and better secular market.”
The Standard & Poor’s 500 Index is returning almost six times as much as the broadest gauge of global equities this year and has kept that edge since the bull market began–– a feat unmatched since data on the world measure began in 1969, the year Nixon took office, according to data compiled by Bloomberg.
At the same time, funds that buy American shares have seen cash pulled for four of the past six years. The $13 billion received in 2014 equals 12 percent of the money sent to the rest of the world.
Equity Outflows
While unprecedented monetary stimulus from the Federal Reserve and share buybacks approaching record levels helped send the S&P 500 28 percent above its previous peak in 2007, investors are reluctant to embrace the rally.
In August, they pulled $5.8 billion from funds that invest in U.S. stocks even as the S&P 500 climbed 3.8 percent, data compiled by Bloomberg and the Investment Company Institute show. It was the second month of outflows after almost $20 billion of inflows in the first half of the year.
Equity funds with a global focus and those investing in bonds took in $13 billion and $10 billion in August and added money every month in 2014.