I have been writing for months about how retail investors have been pulling cash out of domestic equity funds in favor of bond funds. That is true, according to the Investment Company Institute’s figures of cash flows. But there is a mitigating circumstance. The ICI estimates that total net assets within the U.S. investment industry reached “a massive” $13.76 trillion in 2012. (The Leuthold Group describes that sum as “massive.” BTW, full disclosure: I own shares of Leuthold's mutual fund, Leuthold Core Investment Fund, LCRIX)
Leuthold researchers point out in their October “Green Book” that, yes, $500 billion left the domestic equity fund subset since 2007, but, in 2012, the amount of net cash yanked only represents about 2% of all U.S. equity mutual funds. Viewed this way, retail investors therefore did not entirely miss the 30% run in domestic stocks over the trailing 12 months.
Bond funds have been the winner, garnering $1.12 trillion. One fact that I overlooked: “Despite persistent net outflows from the domestic equity mutual fund category, there has been positive flow into the indexed equity fund subset,” Leuthold points out. So, when you factor all that in (foreign focused mutual funds and ETFs and hybrid funds are all enjoying net inflows of cash), “outflows appear less overwhelming,” says Kristen Hendrickson of Leuthold.