Market Beat: Record stock fund outflows
In recent weeks investors have been shifting record amounts of money from stock mutual funds into bond mutual funds. The numbers are huge.
According to a report from Citi Research, for the week that ended Feb. 5, there was a record flow of $13 billion into bond funds and a record flow of $24 billion out of U.S. stock funds.
The money flows from stock ETFs, or exchange traded funds, into bond ETFs have been impressive. The SPY, the ETF that represents the S&P 500 index, had an outflow of $8.6 billion dollars. A lot of that money went into U.S. Treasury bond funds.
The SHY, which is the symbol for the short term U.S. Treasury bond fund, has an inflow of $3.7 billion. Yes. The symbol actually spells the word shy, which implies that the fund is suited for shy investors who are seeking a low risk investment.
SHY consists of Treasury bonds with a short term maturity of 1-3 years. Longer term Treasury funds also had strong cash inflows.
The 3-7 year Treasury bond fund, IEI, had an inflow of $3.6 billion. UST, a Treasury bond fund with maturities within the 7-10 year time frame saw a $2.8 billion inflow.
Emerging markets funds also had large outflows. The total outflow from emerging markets was $6.4 billion. We have seen emerging markets currencies weaken in the last few weeks and some of the foreign ETFs have currency risk. There are currency hedged foreign ETFs available today.
I’ve had people asking me if they should be concerned about the outflows and even though the dollar amounts are record numbers, that doesn’t mean that there is a reason to panic.
U.S. stock markets were up around 30 percent last year. Many investors and money managers use asset allocation models that are re balanced on a regular basis, like quarterly or even annually.
A common mix for relatively conservative investors is 60 percent stocks and 40 percent bonds. In a year like last year, 2013, if you had a 60/40 stock and bond portfolio and held it all year, you would have had substantial gains in the stock portion of your portfolio and seen the bond portion decline.
Rebalancing would mean selling off stock funds and buying bond funds with the proceeds. When this is done on a large scale, it can contribute to the record flows we’ve been witnessing in the last few weeks.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.