It’s been a choppy year for US stocks, with many getting hit today over earnings disappointments and worries about China. Even so, the S&P 500 is up over 6% year-to-date. The Dow Jones Industrial Average is up almost 7%.
Who is buying these stocks? Not big corporate pension plans, according to a story in the Wall Street Journal. Not mutual fund investors, according to fresh data from TrimTabs.
The data crunchers over at TrimTabs Investment Research highlight a pattern of mutual fund investors continuing to move out of US equity-focused funds, while loading up on global equity funds. Last week marked the sixth in a row that Global Equity funds as a group have gained total assets, according to the Sausalito, CA-based firm. US funds, though, lost assets for the 23rd straight week.
TrimTabs CEO Charles Biderman argues that the trend for US funds is likely to continue, since many investors are still well underwater on their US stock funds. According to his research on mutual flows monthly inflows, the average price paid by investors for stock funds over the last decade was equivalent to 1434 on the S&P 500, which today is just 1185 even after its recent gains. “Investors are loath to put new money in when they have a loss on their existing investment,” Biderman explains.
The current Federal Reserve policies pushing interest rates down, have created a more attractive opportunity Biderman says, to invest with cheaply borrowed money in better growing emerging markets. “The Federal Reserve is paying people to buy stocks,” he says. “The Fed is giving away money and investors are taking that money and buying non-US stocks.” Rising money supply will continue the trend, he predicts: “The dollar’s decline has juiced the returns investors have earned on non-U.S. equities, and we expect the dollar to continue to drop as the Fed prints more money.”
The WSJ piece outlines a sharp reduction in corporate pension plans equity holdings overall: From over 70% of their holdings in the mid 200s to just 45%, according to the Center for Retirement Research at Boston College. That promises a further drag on US equities moving forward, as these companies start to have to fill in the shortfalls they won’t get from stock appreciation with cold hard cash.
So mutual fund investors and major corporate pension plans are not buying U.S. stocks. So really, who is?