US versus Non-US Mutual Fund Money Flows
Posted on Sunday, June 22nd, 2008 | In Current Market NewsMutual fund money flows provide a good indicator of general US retail investor behavior, as does their overall allocation between classes.
They are the recipient of the bulk of 401-k assets and a large portion of IRA and other individually controlled investments.
While they also include nearly 14% institutional assets, mutual funds hold $12 trillion in assets of which 86% are from individual accounts. That makes them probably the best overall gauge available of retail investor decisions.
The chart shows the money flows into and out of mutual funds investing primarily in US stock funds versus those investing primarily in international or global stock funds for the years 2002 – 2007, plus an annualization of the first 4 months of 2008.
The chart shows that since 2003, US investors have been reducing their relative net new money commitment to domestic stocks while increasing their commitment to international stocks.
For the first four months of 2008, net money flows to stock funds have been negative, but all of that came from reducing domestic commitments while only slightly increasing international commitments.
Reductions in US stock fund money flows were not counterbalanced by increases in international/global stock fund money flows. Two major possibilities could explain that.
Retail investors could be changing the risk composition of their portfolios by reallocation from US stocks (proxies VTI and SPY) and non-US stocks (proxy VEU) to other classes such as bonds (proxies AGG and IEF) or money markets, or something else.
Alternatively, they may be redeeming investments to maintain lifestyle now that home equity loans are hard to find, and the cost of everything is rising, but their real wages are not.
Richard Shaw
QVM Group LLC
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 About Richard Shaw (http://www.QVMgroup.com)
Richard is a principal of QVM Group LLC, a fee-based investment advisor based in Connecticut with clients across the country. He provides investment coaching to "do-it-yourself" investors, and manages portfolios for those who prefer not to make their own decisions. His investment approach is based on value, asset allocation, benchmarking, expense control, risk management, customizing portfolios to each client's specific circumstances, and regular communication about strategy and performance. The QVM Group team also provides municipal refinance services, strategic business planning and financial analysis service for new ventures, private acquisition analysis, and custom investment research. Richard's extensive experience, includes serving on the Board of Directors of Aberdeen Asset Management PLC (London Stock Exchange: ADN), membership on the Board of Directors of Phoenix Investment Counsel (renamed Virtus Investment Advisors), a U.S. pension manager and investment advisor to the Phoenix Funds (renamed Virtus Funds), as well as serving as Managing Director of a series of offshore investment funds based in Luxembourg. He has led institutional asset management sales and had overall responsibility for management of a U.S. mutual funds broker-dealer. He was a charter investor and member of the Board of Directors of several internet companies, including Lending Tree prior to its IPO. He is a graduate of Dartmouth College. QVM Group LLC is a Registered Investment Advisor. Visit the QVM Group website http://www.qvmgroup.com/QVMinvest/ |
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