Retail Still Hates Stocks

Total Return (WSJ Blog) – Are Individual Investors Fleeing Stocks? Nope
A new report from Vanguard Group casts some doubt on the meme that retail investors have been fleeing stocks like rats from a sinking ship. The report, “How America Saves,” is the latest installment in Vanguard’s annual survey of the more than 3 million Americans who participate in retirement plans administered by the giant fund company. To be sure, this year’s study (encompassing data from 2011) shows that the proportion of assets in retirement plans invested in stocks fell three percentage points from last year and is down eight points from its peak in 2007. But that still leaves 65% in stocks – versus 17% in cash and 10% each in bonds and balanced funds…The story gets more interesting when you look beyond people’s balances to see what they are doing with the contributions from their current paychecks. Fully 71% of that money is going into stocks, reports Vanguard – up one percentage point from 2010 and three points higher than in 2009. If this is “the death of equities,” the funeral seems extraordinarily well-attended. There is something subtle going on beneath the surface, however. The share of new contributions going directly into diversified stock funds is only 38% – down drastically from 51% in 2007. Employees have also scaled back their stake in their own company stock, to 6% now from 8% in 2007. The money they have yanked from company stock and diversified equity funds has migrated into target-date funds, those prebundled baskets of stocks, bonds and cash that are aimed at workers who will retire in specific years. When you count the portion of target-date assets that are invested in stocks, they account for about a 27% commitment to equities.


Count us in the group who has highlighted individual investors’ flight out of stocks.  As the chart below shows, retail investors have not been net purchasers of domestic stocks on an annual basis since February 2007.

Click to enlarge:

So what should we make of the assertion from the survey mentioned above that roughly 65% of retirement funds at Vanguard Group are still in stocks?  The chart below highlights ICI data and shows the percentage of assets in stock, bond, and hybrid mutual funds.  As of May 31, 2012, 57.27% of all mutual fund assets were parked in stocks versus 33.35% in bonds.  While this seems like a large chunk of money to be devoted to stocks, note that this is the lowest percentage in over 17 years.  Additionally, the percentage of mutual fund assets in stocks is still on the decline.

Do not focus on the fact that money in equity funds is still almost double that of bond funds.  This has been true for the better part of the past two decades.  Instead, the monthly flows out of domestic equity funds since 2007 offer a more accurate gauge of retail investors’ opinion of stocks since the 2007 highs.

Source: Bianco Research

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