http://finance.yahoo.com/blogs/the-exch ... 36177.html
Excerpts from the article:
My reaction is this. Yes, a greater proportion of money is going into index funds and assets under management (AUM) fees. But one cannot conclude from that that there will be a relentless bid under the market causing it to go up or to catch itself before a downturn gets too nasty. Index investors (whether individuals or investment managers) can still get spooked by headlines and market downturns. When that happens they may move money from stock index funds to bond index funds or cash equivalents. Also, individuals with managed accounts may pull their money out of managed accounts to get into cash equivalents or bonds. Still, I am inclined to agree that those tendencies to get spooked happen less often and to a lesser extent with index fund investors. Best, Neil...In 2005, fee-based accounts directly managed by financial advisors and brokers totaled $198 billion. As of year-end 2013, that figure had soared to over $1.29 trillion – more than a sextupling in under a decade. It is safe to say that, while some of these fee-based accounts are managed actively (brokers picking stocks, selling options and whatnot), the vast majority are not. Most of this money is being run more passively – in the absence of a transactional commission incentive for the advisor to trade, why else would he?
...the vast majority of this snowballing asset base being reported by both wirehouse firms and RIAs is being put to work in a calm and methodical fashion: long-term mutual funds, tax-sensitive separately managed accounts (SMAs) and, of course, index ETFs. Vanguard, State Street and iShares are to this era of investing what Janus, Fidelity and online day-trading were to the 1990′s. In fact, Vanguard’s share of all fund assets – now approaching 20% or $2.3 trillion – is the vexillum behind which the entire do-less movement marches.
What this means for the very character of the stock market and the way it behaves is very important. It means that, almost no matter what happens, each week advisors of every stripe have money to put to work and they’re increasingly agnostic about the news of the day. They’ve all got the same actuarial tables in front of them and they’re well aware that their clients are living longer than ever – hence, a gently increased proportion of their managed accounts are being allocated toward equities. And so they invariably buy and then buy more.
Whereas yesterday’s brokers were principally concerned with keeping money in motion and generating activity each month, today’s brokers – who call themselves wealth managers by the way – are principally concerned with making client retirement accounts stretch out over decades. Stocks are increasingly the answer to this puzzle. Bonds, with their fixed rate of income, by definition cannot get the job done. This means a bias toward buying equities everyday and almost never selling. It means adding to stocks sheepishly on up days and voraciously on the (rarely occurring) down ones.
In short, it means a relentless bid as the torrent of assets comes flowing in every day, week and month of the year.