The Investor Rush Into Bonds Hasn't Cooled Despite The Threat Of Rising Interest Rates And Inflation

Latest data from the Investment Company Institute (ICI), which tracks fund flows into U.S. mutual funds, confirms that U.S. investors have begun to invest in U.S. stocks again. Yet they have just begun to do so. Net fund flows into U.S. equities are just $1.1 billion year to date, mostly due to a very recent pick-up during the last few weeks of data. This is shown below by the right-most positive red bars below.

Meanwhile, $116 billion flowed into bond funds, as shown by the grey bars below.

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If we compare year-to-date fund flows to 2009’s annual fund flows, two things stick out:

1) The $1.1 billion of net inflow into U.S. equities as of April 21 is puny compared the the net $39 billion that flowed out of stocks in 2009 (Shown below). So there’s still a long way to go before all the money which fled in 2009 will come back.

2) Bond inflows are still very strong, and haven’t cooled despite concerns about rising interest rates and potential inflation. If we annualize the $116 billion that has gone into bond funds as of April 21st, then it comes to about $370 billion, which means that fund flows are currently on track to flow into bonds at the same rate as they did during 2009 ($375 billion as shown below). Thus bond love is still very strong in the minds of the average U.S. investor, and U.S. stocks are still largely avoided.

As a reminder, ICI data is comprised of flow estimates ‘derived from data collected covering more than 95 per cent of industry assets and are adjusted to represent industry totals.’

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