Many individuals are afraid to dip a toe back into stocks during the rally but some institutional investors are using ETFs to buy the dips and position for more upside and an improving economy.
Equity-based ETFs have seen inflows in recent weeks while investors continue to pull money from stock mutual funds.
“ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent retail investors. It’s possible that institutional investors, eyeing recent encouraging housing data, are willing to put money into riskier assets now on hopes the U.S. recovery is picking up steam,” Reuters reports.
“I think this is people buying on the dip,” said Tom Roseen, head of research services at Lipper.
Meanwhile, retail investors have stayed on the sidelines, judging by seven straight weeks of outflows from equity mutual funds.
Individuals were afraid of September, typically a bad month for stocks, and remain fearful after the financial crisis. Aging investors could also be rotating to bonds from stocks to reduce risk in their portfolios.
“America’s getting grayer, and as that happens people move into more, I think, fixed income and probably less volatile types of securities,” Roseen said in the article.
U.S. stocks are nearing all-time highs and have more than doubled since the subprime meltdown, but many individual investors have missed the rally, according to a separate Reuters report.
“This is the most uncelebrated bull market in history,” said Tony Ferreira, managing director at Cogent Research. “In the old days, people would be jumping on the bandwagon, but nobody’s chasing equity performance this time. Many people are still scared to wade back into the water.”
iShares S&P 500 (NYSEArca: IVV)
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.