Mutual Fund Flows
This chart shows how much money people put into, or take out of, mutual funds that invest in U.S. stocks each month:
The masses have a reputation for pulling their money out of the stock market at the worst possible time, and piling in at the top, so most traders view this data with a contrarian perspective. However, notice that the public started pulling its money out of U.S. stocks early in 2007, well before the top in October.
Perhaps people wanted to move money into hotter areas such as commodities or emerging markets. Or maybe high mortgage payments, high food prices, high gasoline prices, etc. caused people to pull money out just to pay bills. And that could have caused the market to fall in late 2007.
With this next chart, I simply calculated a running total of how much money went in, or out, each month to show how much money people had accumulated in mutual funds during this period:
Notice that all of the money put in over the past four years has now been pulled out. There isn’t much froth in the U.S. market now. While a nasty recession can push the market down further, it’s unlikely that we will have a massive bear market like we did in 2001-2002. Also, if you have been doing well in the market recently, give yourself a pat on the back because you have probably been competing against mostly pros as the general public wants nothing to do with this market.
Keep in mind that there were large inflows into U.S. stocks during the bull market of 2003 - we just don’t know the exact number. So, there is certainly still quite a bit more that can be pulled out.
Next Update
At the end of May 2008, the ICI will release numbers for April, and revised numbers for March. There are thousands of mutual funds, with plenty coming and going each month, so counting up all the numbers is a big job and the data is lagged by a month. Since the market did well in April, it will be interesting to see if people kept pulling money out as that might indicate that they were having trouble making ends meet.
About the Data
Each month, the Investment Company Institute publishes the amount of money that flowed into, and out of, the different types of mutual funds in the previous month.
Beginning in May 2004, the ICI began to consistently break out the numbers for funds that only invest in U.S. stocks. Prior to that, only one number was reported that also included funds that invested overseas.
May 2nd, 2008 at 2:19 pm
thanks for compiling this data.
any idea about how much of the dropoff in mutual funds might be due to a shift to etfs and etns? i hold only one mutual fund (a long-short fund for which i have not yet found a comparable etf). for me etfs represent somewhere between 2 and 3 times the domestic equity mutual fund holdings i own. this represents a sharp shift in the market share of mutual funds versus etfs, at least in my holdings.
May 2nd, 2008 at 3:28 pm
Hi gjg49,
There was a survey of financial advisers done by Cogent Research, LLC in February 2008. The conclusion was that the mutual fund industry would drop from 35% market share to 31% between 2007 and 2009.
So, some of this decline can be attributed to competition from ETF’s. However, I don’t think ETF’s alone can account for the dramatic withdrawal of money over the past year.
Also, if the money were pulled out of mutual funds and put right back into ETF’s, we probably wouldn’t have had this bear market. And we wouldn’t have had that massive surge of cash into money-market funds.
Matt