U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
BuyAndHoldOn
Posts: 199
Joined: Mon Mar 30, 2015 6:51 pm

U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by BuyAndHoldOn » Sat Jan 27, 2018 9:16 pm

https://www.fidelity.com/insights/marke ... unds-shift

In general there are two big trends: Investors are rebalancing from stocks into bonds, and within stocks, they’re rebalancing from U.S. to international equity. Based on performance, this isn’t normally what you’d see, and you also wouldn’t expect to see a large move into bonds at a time when interest rates are moving up,” said Alina Lamy, a senior analyst of financial markets at Morningstar.


To Me: This flies in the face of the conventional wisdom about investor sentiment at the moment, particularly with how January has gone for US markets.

Maybe this is some of why the recent Bull Market has been so durable: It really is different this time with how investors [en masse] are behaving.

am
Posts: 2794
Joined: Sun Sep 30, 2007 9:55 am

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by am » Sat Jan 27, 2018 9:26 pm

What happened to the buying high and selling low crowd? Could this behavior be because of roboadvisors, countless books promoting indexing and stay the course, poor active management performance, and knowing that the market always goes up long term. Maybe this time is different? I highly doubt it but who knows.

thx1138
Posts: 785
Joined: Fri Jul 12, 2013 2:14 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by thx1138 » Sat Jan 27, 2018 9:51 pm

I can never tell what exactly is included in these kinds of studies...

There is quite a bit of target date funds out there. They would automatically have been rebalancing this whole time. Is that effect tracked here? In many cases the TD is built from component funds so as the market runs up the TD fund should create a net flow out of equity component funds into bond component funds.

Anywho, an interesting article seeming to show a lack of performance chasing...

User avatar
nedsaid
Posts: 10680
Joined: Fri Nov 23, 2012 12:33 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by nedsaid » Sat Jan 27, 2018 9:53 pm

Wow. After years and years of bashing of individual investors by the financial press, reading an article like this is really refreshing. I think individual investors as a group are a lot smarter than what they are given credit for. Rebalancing from stocks to bonds in a rising stock market is 100% rational behavior particularly in light of our aging population. It also makes 100% sense to rebalance from expensive US Stocks into cheaper International Stocks. It is almost like they have been reading my posts on Bogleheads. :wink:
A fool and his money are good for business.

stlutz
Posts: 4847
Joined: Fri Jan 02, 2009 1:08 am

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by stlutz » Sat Jan 27, 2018 9:56 pm

Let's keep the cause and effect in the correct direction here. The stock market going up is a result of money flowing into stocks, not a cause--that whole supply and demand thing. What is happening with retail mutual funds is only a piece of the puzzle.

SlowMovingInvestor
Posts: 916
Joined: Sun Sep 11, 2016 11:27 am

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by SlowMovingInvestor » Sat Jan 27, 2018 10:00 pm

nedsaid wrote:
Sat Jan 27, 2018 9:53 pm
Wow. After years and years of bashing of individual investors by the financial press, reading an article like this is really refreshing. I think individual investors as a group are a lot smarter than what they are given credit for. Rebalancing from stocks to bonds in a rising stock market is 100% rational behavior particularly in light of our aging population. It also makes 100% sense to rebalance from expensive US Stocks into cheaper International Stocks. It is almost like they have been reading my posts on Bogleheads. :wink:
But this article isn't just about individual investors, right ? It's both individual and institutional, and larger demographic trends may drive purchase of bonds by institutions.

Jebediah
Posts: 515
Joined: Tue Aug 28, 2012 9:19 pm
Location: Denver, CO

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by Jebediah » Sat Jan 27, 2018 10:12 pm

Investors are cutting their exposure to equities, and they have been for years.

How is this possible? Every share sold is a share bought. Is it a buyback phenomenon? Is it that there are less equity investors but larger holdings per individual? How does this concept of "flows" really work?

User avatar
BuyAndHoldOn
Posts: 199
Joined: Mon Mar 30, 2015 6:51 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by BuyAndHoldOn » Tue Feb 27, 2018 10:51 am

Jebediah wrote:
Sat Jan 27, 2018 10:12 pm
Investors are cutting their exposure to equities, and they have been for years.

How is this possible? Every share sold is a share bought. Is it a buyback phenomenon? Is it that there are less equity investors but larger holdings per individual? How does this concept of "flows" really work?

I heard on the 2/26/2018 Bloomberg P&L Podcast: Yes, it is a buyback phenomenon. Retail investors + Pensions have been buying less US equity or selling more of it. (Not sure about other big institutions).

I haven't corroborated that with other evidence, however.

Dominic
Posts: 203
Joined: Sat Jul 02, 2016 11:36 am

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by Dominic » Tue Feb 27, 2018 11:40 am

Investors are sticking with their allocations because things have been good. The market has been rising pretty steadily, and the economy looks healthy, so they aren't worried. I don't think investor behavior has changed; the environment has. If things go south, I think they'll start bailing. Hopefully I'm wrong, and things are different now.

The rebalancing is probably on account of money in balanced index funds (e.g. target retirement or LifeStrategy funds).

david1082b
Posts: 371
Joined: Fri Jun 09, 2017 12:35 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by david1082b » Tue Feb 27, 2018 12:54 pm

Over the past 10 years, the S&P 500 has more than doubled. The iShares Core U.S. Aggregate Bond ETF a widely used proxy for the overall U.S. fixed-income market — is up about 5% over the same period, while the Vanguard FTSE All-World ex-US ETF (VEU) — an ETF that tracks the global stock market but excludes the U.S. — is up less than 10%.

The following chart, based on FactSet data, shows the performance of the S&P 500, in blue, against both the AGG (gray) and the ex-U.S. fund (red) over a 10-year period. While equities saw sharp losses during the financial crisis, they since recovered, and have easily been the best-performing group of the three over the past decade.
Seriously, Fidelity, a price-only comparison? Where's the income? I make it 42% total nominal return for AGG in the last ten years, 34% for VEU. http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Fidelity's chart makes it look like a dead heat between AGG and VEU, but actual returns for AGG were nearly 10% better.

david1082b
Posts: 371
Joined: Fri Jun 09, 2017 12:35 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by david1082b » Tue Feb 27, 2018 1:34 pm

Big price gains in total bond market funds are not something to expect really. The price of VBMFX has remained almost unchanged for the entire life-time of the fund, it's only 5% higher now than when the fund started in 1986. I really don't know what Fidelity was trying to say with the price-only "performance comparison" chart, when almost 100% of the return on total bond market funds is explained by income.

User avatar
alpine_boglehead
Posts: 247
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by alpine_boglehead » Tue Feb 27, 2018 1:59 pm

BuyAndHoldOn wrote:
Tue Feb 27, 2018 10:51 am
Jebediah wrote:
Sat Jan 27, 2018 10:12 pm
Investors are cutting their exposure to equities, and they have been for years.

How is this possible? Every share sold is a share bought. Is it a buyback phenomenon? Is it that there are less equity investors but larger holdings per individual? How does this concept of "flows" really work?

I heard on the 2/26/2018 Bloomberg P&L Podcast: Yes, it is a buyback phenomenon. Retail investors + Pensions have been buying less US equity or selling more of it. (Not sure about other big institutions).

I haven't corroborated that with other evidence, however.
Warren Buffet seems to be thinking along similar lines in Berkshire Hathaway's recently published 2017 annual letter to its shareholders - he laments that there aren't any good deals out there anymore because of a purchasing frenzy by companies fueled by cheap debt.

A big institution that is ramping up stock purchases is Norways sovereign fund which has a $1T portfolio (e.g. according to this article).

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by WanderingDoc » Tue Feb 27, 2018 2:23 pm

BuyAndHoldOn wrote:
Sat Jan 27, 2018 9:16 pm
https://www.fidelity.com/insights/marke ... unds-shift

In general there are two big trends: Investors are rebalancing from stocks into bonds, and within stocks, they’re rebalancing from U.S. to international equity. Based on performance, this isn’t normally what you’d see, and you also wouldn’t expect to see a large move into bonds at a time when interest rates are moving up,” said Alina Lamy, a senior analyst of financial markets at Morningstar.


To Me: This flies in the face of the conventional wisdom about investor sentiment at the moment, particularly with how January has gone for US markets.

Maybe this is some of why the recent Bull Market has been so durable: It really is different this time with how investors [en masse] are behaving.
On its surface, to me this is indicative of mass access to information not otherwise available to everyone, simple due to the internet.

10-15 years ago, people would not have been smart enough because lets face it few Americans read books. Another example, with websites like BiggerPockets, people actually know what a good real estate deal looks like, and are less likely to overpay or buy a deal without the proper analysis.

Information is being diluted and now available to the masses, ladies and gentlemen. This means that irrational behavior and bubbles are likely to be less severe going forward.

There will no longer be opportunity for an informational or analytical advantage, so the days of 10X or 100X returns, or catching a trend before your neighbor does, is long over. Thank the internet.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

boglesmind
Posts: 174
Joined: Sun Jan 05, 2014 1:07 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by boglesmind » Tue Feb 27, 2018 2:30 pm

Jebediah wrote:
Sat Jan 27, 2018 10:12 pm
Investors are cutting their exposure to equities, and they have been for years.

How is this possible? Every share sold is a share bought. Is it a buyback phenomenon? Is it that there are less equity investors but larger holdings per individual? How does this concept of "flows" really work?
What about new money from savings (401k, 403b, IRA etc) flowing more into bonds vs. stocks? This can tilt asset allocation in favor of bonds without having to sell stocks.

Boglesmind

wolf359
Posts: 1460
Joined: Sun Mar 15, 2015 8:47 am

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by wolf359 » Tue Feb 27, 2018 2:31 pm

WanderingDoc wrote:
Tue Feb 27, 2018 2:23 pm
On its surface, to me this is indicative of mass access to information not otherwise available to everyone, simple due to the internet.

10-15 years ago, people would not have been smart enough because lets face it few Americans read books. Another example, with websites like BiggerPockets, people actually know what a good real estate deal looks like, and are less likely to overpay or buy a deal without the proper analysis.

Information is being diluted and now available to the masses, ladies and gentlemen. This means that irrational behavior and bubbles are likely to be less severe going forward.

There will no longer be opportunity for an informational or analytical advantage, so the days of 10X or 100X returns, or catching a trend before your neighbor does, is long over. Thank the internet.
Information is everywhere. But despite the fact that 6th graders have enough knowledge to write books about Bitcoin, doesn't make me think it isn't a bubble. (see: https://news.bitcoin.com/sixth-grader-w ... t-bitcoin/)

Quite the opposite. Irrational behavior will still reign.

dkturner
Posts: 1363
Joined: Sun Feb 25, 2007 7:58 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by dkturner » Tue Feb 27, 2018 2:48 pm

Jebediah wrote:
Sat Jan 27, 2018 10:12 pm
Investors are cutting their exposure to equities, and they have been for years.

How is this possible? Every share sold is a share bought. Is it a buyback phenomenon? Is it that there are less equity investors but larger holdings per individual? How does this concept of "flows" really work?
Take a look at AAPL, the world’s most valuable company, and see how many shares were outstanding in 2013 (6.52 billion) and how many shares are currently outstanding (5.16 billion). Where have all the AAPL shares gone? They went to graveyards every one.

rixer
Posts: 618
Joined: Tue Sep 11, 2012 4:18 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by rixer » Tue Feb 27, 2018 2:51 pm

I think when a real big drop happens due to recession and things look bleak, you'll see many people bail out of equities. The emotions get strong when you're losing a bundle.

WanderingDoc
Posts: 1284
Joined: Sat Aug 05, 2017 8:21 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by WanderingDoc » Tue Feb 27, 2018 4:03 pm

wolf359 wrote:
Tue Feb 27, 2018 2:31 pm
WanderingDoc wrote:
Tue Feb 27, 2018 2:23 pm
On its surface, to me this is indicative of mass access to information not otherwise available to everyone, simple due to the internet.

10-15 years ago, people would not have been smart enough because lets face it few Americans read books. Another example, with websites like BiggerPockets, people actually know what a good real estate deal looks like, and are less likely to overpay or buy a deal without the proper analysis.

Information is being diluted and now available to the masses, ladies and gentlemen. This means that irrational behavior and bubbles are likely to be less severe going forward.

There will no longer be opportunity for an informational or analytical advantage, so the days of 10X or 100X returns, or catching a trend before your neighbor does, is long over. Thank the internet.
Information is everywhere. But despite the fact that 6th graders have enough knowledge to write books about Bitcoin, doesn't make me think it isn't a bubble. (see: https://news.bitcoin.com/sixth-grader-w ... t-bitcoin/)

Quite the opposite. Irrational behavior will still reign.
You're absolutely right. Information NOW is everywhere, and its free and easily available. It wasn't 20 years ago. There will be a lot of Bitcoin millionaires and billionaires, but that will be the last hurray, no longer an opportunity like that will every present itself in our lifetime. Knowledge is too dilute and available and that won't change.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

inbox788
Posts: 5693
Joined: Thu Mar 15, 2012 5:24 pm

Re: U.S. stock inflows over the past 12 months: $25 billion. Taxable bond inflows: $392 billion

Post by inbox788 » Wed Feb 28, 2018 2:22 pm

Flows only indicate net changes being made to portfolios; a buy-and-hold investor will see his or her assets fluctuate along with market movements without having an impact on flows. Nevertheless, this trend is on its surface counterintuitive, as stocks have risen in essentially uninterrupted fashion ever since the financial crisis bottom in 2009, while bonds have been mostly stagnant, suggesting the opposite of performance chasing has been occurring.
This is simply rebalancing or folks with capital gains taking some off the table.
BuyAndHoldOn wrote:
Sat Jan 27, 2018 9:16 pm
https://www.fidelity.com/insights/marke ... unds-shift

In general there are two big trends: Investors are rebalancing from stocks into bonds, and within stocks, they’re rebalancing from U.S. to international equity. Based on performance, this isn’t normally what you’d see, and you also wouldn’t expect to see a large move into bonds at a time when interest rates are moving up,” said Alina Lamy, a senior analyst of financial markets at Morningstar.


To Me: This flies in the face of the conventional wisdom about investor sentiment at the moment, particularly with how January has gone for US markets.

Maybe this is some of why the recent Bull Market has been so durable: It really is different this time with how investors [en masse] are behaving.
The trends seem to be correct, but I don't agree with the "normally" conclusion.
Jebediah wrote:
Sat Jan 27, 2018 10:12 pm
Investors are cutting their exposure to equities, and they have been for years.

How is this possible? Every share sold is a share bought. Is it a buyback phenomenon? Is it that there are less equity investors but larger holdings per individual? How does this concept of "flows" really work?
Demographics! It's all the baby boomers adjusting their AA glidepath. In fact, they created the misconception 30 years ago that stock flows should outpace bond flows. When they were younger, they caused the big increase in stock flows during their accumulation phase. Now that they're distributing, bonds is where the flows go. Unless you dig enough into the numbers, it's hard to separate simple demographic changes from market changes.

Post Reply