You Know Why They Are Leaving? They Are Scared Sh**less!

From The New York Times today:

“Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds. If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.”

It continues:

“‘At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds’ rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, ‘This is very unusual.’

This “stage in the economic cycle”? So there is a pattern since the summer of 2007 that we could have looked back at with expectations of future direction? “Unusual”? Unusual compared to what? This guy is held out as an expert and there is no there there. I don’t know Brian K. Reid, but he should be working at Burger King making Whoppers and not posing as a market useful voice.

12 thoughts on “You Know Why They Are Leaving? They Are Scared Sh**less!

  1. Correct me if I’m wrong but if I look at a monthly chart of the Dow in “the 80’s” I see a low in April 1980 and a pretty solid 10 year +200% rise (87 excepted). If the only historical example we have of this happening is “the 80’s” then, woohoo, look out ahead. Doomsday to the tune of a +200% gain. If that’s what doomsday looks like…LOL

    I’m guessing the 80’s exodus had something to do with another set of freaked out “investors” coming out of the ’70’s. They always seem to give up and get out at the wrong time these “investors”, then it takes them years to lick their wounds and get back in…at the wrong time.

  2. Why can’t these economists tell me where the next boom is going to come from? Now THAT’S some info I could use!

  3. Gene, I feel like I am on some distant Star Trek planet where everything is backwards. Why are economists even given the stage (and the mic) still?

  4. Down is confusing
    Up makes sense to every one
    Just follow the trend

    in the year 3000… economists will speak only with haiku!

  5. If you look under the covers at the money flows, people are leaving mutual funds and buying ETFs instead. ETF purchases are up 30.2% Y/Y as of June and I suspect that people are buying international. I suspect this because if you look at mutual fund money flows, they are buying hard international and there are small domestic liquidations. This is just a trend that appears to have accelerated since last year’s bottom.

  6. Maybe one reason that investors are leaving mutual funds is the fact that many are telling investors that they have to stay in a fund for X number of days or they will have to pay a penalty. Some charge 2% redemption fees. I don’t’ think anyone should tell us how long we must hold an investment, and I don’t think redemption fees should be legal.

  7. Ditto Jim…and I would add that investors may be sheep, but they’ll go where they can save a buck and that would be to ETF’s.

    Why pay a mutual fund 3% to “manage” your money when you can get the same investment in an ETF for 0.5?

    Mutual funds have screwed themselves as people lost 20 – 30% of their holdings during the financial crisis, forcing evven the most passive investor to conclude that his money was not being managed, it was being held. So why not switch to the eqivalent ETF. ETF growht has exploded and I think a lot of it is ex-mutual-fund money.

  8. Jim:

    I disagree somewhat to your general statement that people should not be told how long to hold an investment. Some investments are designed to be held so that they can work as they are supposed to – think a bond or CD at a bank (constant redemptions interrupt the flow of cash the banking business uses for re-loaning). If you invest with a successful trend follower, is it not better to allow time for the trend following system to achieve its statistical expectation? Would you not want to be informed of what the strategy is and how it is best implemented? Most asset classes need some inherent time-factor for the processes of the strategy to work over the long term. I can understand if you think mutual funds are a poor investment strategy, but that is a different debate than being told how long to hold an investment its for optimal chances of success (however you define success).

    Some funds charge 2% redemption fees if they do not charge front-end fees. It is important to talk specifically rather that cherry pick a piece of information and make general conclusions about all funds. I will buck the trend a little bit here to say that for the average retail investor, a properly diversified portfolio (including some exposure to equity markets) is usually the best route for capital appreciation (and this route generally includes some type of mutual fund as most investors do not have sufficient capital for a large stock/managed futures portfolio – or they do not have the time, desire or capacity to be financial experts – and as capitalists, it is ok to charge a fee for knowledge and expertise).

    As for DG’s comment, I am sure he knows that the rules of most mutual funds require them to be fully invested. This does not mean mismanagement. And I am sure he knows that, during times of crisis, most equity markets tend to be highly correlated. There are many different reasons for the choice of a fund manager, some of which may be to gain more than the market over time, or maybe to lose less in a down market. And many funds achieve their own stated objectives. Remember, there are many inherent risks in owning derivative-based ETF investments as well. And some of those risks may not be work saving .5% yr on fees. I also do not see anyone on this page screaming to take their money out of Bill Dunn’s funds when he is down 40% in a year.

    My point is that it is all relative to the individual and the portfolio, and most investment types have their place.

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