Investors socked almost $77 billion into mutual funds and exchange-traded funds over the four weeks ending June 16, according to new data published by the Investment Company Institute, which tracks the fund flows.
The largest share of that haul, 58%, went into funds that specialize in bonds, both taxable and municipal. The remainder went to stocks, 38%, and commodities 5%. (The figures don’t sum to 100% due to rounding.)
The fact that so much of the cash in headed to the bond market is probably a bullish sign for stocks. Individual investors dominate the mutual fund market and most have some exposure in the ETF market. These investors tend to reach for the relative safety of fixed income securities when stocks are weak or wobbly as they have been recently. That behavior compares to professional investors who tend to buy stocks when the market is weak and sell when stocks hit peaks.
For the past month the stocks market has been weak when compared to its rockstar performance since this time last year. The SPDR S&P 500 ETF (SPY) which tracks the S&P 500 index, has gained a relatively small 2.5% in the last month, compared to the 35% over the 12 months, according to data from Yahoo.
What this flight from stocks to bonds tells us is that perhaps its time to buy stocks.
As investing legend Warren Buffet said: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
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If indeed the fund flows indicate fear, as they have historically, then perhaps now is the time to buy.