Investors still dumping stocks. But they love ETFs.August 16, 2012: 2:04 PM ET
Investors continued to bail out of U.S. stock mutual funds last week, despite a rally in the market fueled by an upbeat July jobs report and hopes that central bankers will soon step in to support financial markets.
Investors pulled $3.6 billion out of U.S. stock mutual funds during the week ended Aug. 8, according to Investment Company Institute. While the pace of outflows slowed considerably from the prior week, when investors yanked nearly $5.7 billion out of stock funds, it still marks the 25th week out of the last 27 that U.S. stock mutual funds have bled money.
In fact, since the beginning of the year, investors have pulled almost $67 billion from U.S. stock mutual funds. By comparison, these funds lost in the neighborhood of $40 billion during the first seven months of 2010 and 2011.
So where is all the money going?
Bond funds remain hot, according to Shelly Antoniewicz, senior economist at ICI. In total, bond mutual funds drew in $7.2 billion during the latest week. So far this year, bond funds have attracted more than $184 billion. In comparison, bond funds pulled in less than $80 billion during the first seven months of 2011.
Hybrid funds, which invest in both stocks and bonds, have also been popular among investors, adding $800 million in the latest week and $33 billion so far in 2012.
"We've been seeing this pattern for quite a while, and there are demographic and secular factors in play," said Antoniewicz. She noted that as Baby Boomers get older and hit retirement age, they are shifting money from stocks to bonds, since they become more interested in preserving their capital instead of increasing it.
Moreover, there's a general decline in the willingness of investors to take risks across all age groups.
"We interpret that to mean that they're less willing to hold equities," said Antoniewicz. "That doesn't mean they're completely fleeing equity markets, but they are diversifying more, and paring back exposure to stocks."
But as investors flee stock mutual funds, they're also embracing exchange-traded funds, or ETFs, which allow investors to buy exposure to an index, commodity or a basket of assets. ETFs trade on an exchange just like stocks, and are also often cheaper and more tax friendly than traditional mutual funds. While the ETFs are only a tenth of the size of the mutual fund industry, ETFs have exploded in recent years and continue to grow at a rapid pace.
In July, ETF assets grew by $16.2 billion. So far this year, ETFs have lured in more than $88 billion, according to State Street Global Advisors, which is one of the largest managers of ETFs. Fixed income ETFs have pulled in nearly $34 billion while large-cap stock ETFs, like those that track the S&P 500, have pulled in $11 billion.