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What Rally? Investors Shedding Stocks for Bonds

16 August 2012 in Trading Ideas

At Tuesday’s close, the S&P 500 had risen about 7% since June 1. Too bad many investors haven’t been around to enjoy it.

US stock-based mutual funds experienced a fifth-straight month of net outflows in July, according to consulting firm Strategic Insight, totaling nearly $13 billion in lost assets last month.

Last month’s outflow was the largest amount to leave stock funds this year, even though the month coincided with a 1% rise in the broad S&P 500 Index, according to a recent report from the Associated Press.

Of course, the 10-week rise in equities has followed a two-month drop of an even larger amount – that means that while stocks are showing a decent return of nearly 12% for the year to date, they’re also still below their peak of the year.

With traders seeing no capital appreciation from equities in more than four months (despite the broader market’s 12% rise in 2012), some investors have tried carving out some more portfolio yield by fleeing to bonds. Strategic Insight said net deposits for the year through July are already 50% above where they were for all of last year.

Interestingly, Strategic Insight maintained that investors are continuing to “dismiss the positive trends reflected in steady gains in the economy, employment, real estate prices and the stock market.”

On the other hand, some investors may not agree that the trends have been all that positive. Economic growth, as measured by the Fed’s Beige Book and regional manufacturing surveys have been middling, while the unemployment rate just ticked up to 8.3%.

The lack of enthusiasm has been echoed in recent trading volumes. Last week, the Zero Hedge blog noted that the first four days of the week was the lowest non-Christmas four-day stretch in trading in five years.

And it isn’t as if investors are shedding all equities risk. Strategic Insight said international stock funds have reaped $34 billion in net inflows so far this year.