Email of the day
Comment of the Day

October 16 2012

Commentary by David Fuller

Email of the day

On outflows from US mutual funds:
"I don't get your lead item "No end in sight...". According to the article "investors have been pulling money out of stock funds ever since the March 2009 market low". Yet stock prices have doubled over the same period. That seems counter-intuitive to me. I think I understand how spikes in buying or selling of mutual funds could be a contrary indicator, as those flows eventually change direction, but how do fund flows and markets move in opposite directions over a long period (3.5yrs now)? Is QE liquidity somehow behind it? Thanks for your further explanation."

David Fuller's view Thanks for your email which is certain to be of interest to other subscribers.

It does seem counter-intuitive but in addition to what I mentioned yesterday, it indicates that private investors are a diminishing influence in the US stock market - a trend long evident. Also, a percentage of private investors who remain in the market have presumably abandoned funds, due to their higher charges, and switched to ETFs. Whether this will affect the reliability of mutual fund flows as a contrary indicator remains to be seen, but I doubt it, although it will reduce the volume of those flows.

I maintain that QE is a tailwind behind the performance of stock market indices, and not just in the US. Also, share buyback programmes have reduced the supply of equities available in the US and some other stock markets.


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