Retail investors in the U.S. have been exiting in droves in light of the extreme market volatility.
A Bloomberg article hits the nail on the head when questioning the psyche of the average U.S. fund investor.
Mutual fund flows indicate that the damage to psyches is real and lasting:
- 33 straight weeks of fund withdrawals after May 10 2010 totaled $98 billion.
- Fund redemptions total $74 billion thus far in 2011
- $23.5 billion has flown from U.S. equity funds in the week ending August 10, 2011.
A key question is whether these fund flows represent a permanent trend. As indicated in the Bloomberg article, retail fund flows often serve as an extremely accurate contrary indicator—the previous high of cash as a percentage of overall retail portfolios was right before the market recovery in 2002.
There does appear to be something different about the current risk perspective. An average annual return of 3 percent on the S&P for the past 10 years combined with relentless volatility may prove emotionally overwhelming for the average investor—many of whom are at or approaching retirement.
Source: Bloomberg
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