Retail investors seem to have cooled on the stock market.
According to a note from Bespoke Investment Group, equity mutual funds have experienced their largest weekly outflows since August 2011.
“According to the Investment Company Institute (ICI) which tracks this data, domestic equity mutual funds saw an estimated net outflow of $16.3 billion in the week ending 10/19,” said the note from Bespoke. “While mutual fund outflows are nothing new as ETFs have gained in popularity, last week’s outflow was the largest single week exodus from mutual funds since August 2011.”
Additionally, noted Bespoke, the flows into ETFs haven’t offset the mutual fund outflows, implying that investors are to a certain extent simply pulling money from the market rather than re-allocating to other equity exposed funds.
This speaks to a larger view that investors appear to be continually unenthused by the stock market during the recent recovery. Equity funds have seen consistent outflows since the recession, and as Bespoke notes, sentiment — both anecdotally and measured — isn’t too euphoric despite recent all-time highs.
“Whether you look at weekly sentiment polls like AAII, watch the headlines after a bad day in the market, or think about conversations you may have had with people about the stock market in the course of general conversations, sentiment may not be outright bearish, but it is far from bullish or overly complacent,” wrote Bespoke.
In terms of using flows as a contrarian indicator — the thought being when everyone leans one way, lean the opposite direction — Bespoke said outflows worked in the early parts of the bull market but not anymore.
“Early on in the bull market, each of these occurrences came right near a short term market low,” said the note from Bespoke. “More recently, though, the timing of occurrences hasn’t been nearly as good. As shown, in both July and November of 2015 we saw weekly outflows of more than $10 billion, both of which were followed by pretty sizable short-term corrections.”