Investors Cash Out of Equity Funds
Kurt Brouwer July 28th, 2007
Most of the time investors move in and out of mutual funds in a pretty orderly fashion. But, from time to time, they do so reactively. We are seeing that now as Rob Kelley, staff writer at CNNMoney.com reports:
‘…Mirroring the sell-off in U.S. stocks, this week saw the biggest outflow from U.S. stock mutual funds in five years, according to TrimTabs.
For the week ending Thursday, fund investors cashed out a net of $11.3 billion. The biggest outflow came Tuesday, when investors cashed out a net $5.5 billion, making it the second-highest daily outflow of the year. The highest occurred on Feb. 27, when investors sold a net $6.5 billion worth of U.S.-focused funds following a plunge in the Chinese stock market.
On Thursday, when the Dow tumbled 311 points, the funds saw a net outflow of $4.2 billion.
Other types of funds took a hit as well.
Foreign-stock funds shed $1.6 billion for the week, versus an inflow of $2.0 billion the previous week.
Exchanged-traded funds had outflows of $6.3 billion for the week, versus an inflow of $4 billion the week before.
Investors took $1.1 billion out of bond funds, compared to an inflow of $4.2 billion during the previous week…’
This is interesting. Given that there are trillions in equity mutual funds, an outflow of a few billion is not a large percentage of total assets. Yet, it is the biggest outflow in years. Also, it was across the board–U.S. equity funds, foreign equity funds, bond funds etc.
My experience is that when a certain type of mutual fund is hot, money from investors chasing the hot return flows in. And, when a type of mutual fund is cold, investors pull money out. But these kinds of movements tend to occur late in the game and their timing is off.
In this case, investors are pulling out of equity funds and even bonds funds, so where are the assets going? Certainly not into real estate. And, the previous post pointed out that some investors are pulling out of hedge funds. So where are the assets from all these sales?
- Investing , Mutual Funds
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