While the markets may be at all-time highs, individual investors are abandoning equity funds faster than at any time over the last two decades. According to the Wall Street Journal which utilizes data from Refinitiv Lipper, investors have pulled $221 billion from US stock mutual funds and added $85 billion to US exchange traded funds so far this year – on a net basis minus $136 billion, the biggest withdrawals on record.
Bad news? Not so fast. Remember John Templeton’s famous quote about bull markets being “born on pessimism, grown on skepticism, maturing on optimism and dying on euphoria.” Despite the recent, largely sentiment-based run higher in the equity markets during the fourth quarter to date, it hardly seems like investors are throwing caution to the wind and blindly and feverishly piling in. In fact, in an indication of investors’ defensive posture, flows into bond and money market funds have been increasing steadily during the year, totaling $277 billion and $483 billion during 2019, respectively (both near decade highs).
Further, it’s important to keep in mind that individual investors are just one component of demand and one that seems to be less important going forward. Market flows are increasingly programmatic such as with 401(k) retirement programs. Further, companies themselves have been the biggest buyers of stock through share repurchase programs. According to Goldman Sachs, net corporate purchases are expected to total $480 billion in 2019.
Perhaps counter-intuitively, many consider this an encouraging development for continued positive equity returns into 2020. Given current 2019 equity market returns, we will see if FOMO (Fear of Missing Out) returns as we enter the New Year.
The views presented herein are those of Validus Growth Investors, LLC (“Validus”) as of December 2019 and are provided for informational purposes only. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. The information is based on the economic and market conditions as of this date. The information is not intended as a discussion of the merits of a particular offering and should not assume that any discussion or information provided herein serves as the receipt of, or as a substitute for personalized investment advice from Validus or any other investment professional.
This material is provided for informational purposes only and does not constitute a solicitation. The material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any forecasts made will come to pass.