Investors curb their anxiety
For all the worries about a possible collapse of the euro and impending fiscal cliff at home, regular investors aren't exactly stuffing cash under their mattresses.
In contrast to last summer, when investors yanked money from mutual funds and even money-market funds and threw it into checking accounts, people are staying invested this year. Investors put nearly $23 billion into open-end mutual funds from July 1 through Aug. 15. In July and August of last year, by contrast, investors pulled $63 billion from all mutual funds, according to fund-research firm Lipper. "The average retail investor does not want to be caught flat-footed again," says Tom Roseen, a senior analyst at Lipper. "They're selectively putting money back to work."
Investing pros say it's telling that retail investors haven't run for the hills the way they did in 2011, given the array of causes for concern: The combination of expiring tax breaks and automatic spending cuts set to start next year if Congress doesn't act could drag down the economy -- and any resolution is unlikely to come until after the election. Many pros also worry about the European debt crisis rippling into the U.S.
Some of the recent market gains could be a sign that investors are counting on central bank leaders in Europe and the U.S. to step in and boost their respective economies, says Lance Roberts, chief strategist at Streettalk Advisors in Houston: "The markets are running on hope."
However, investors are still uneasy about stocks. They're putting more of their money to work in bonds, pouring an estimated $180 billion into bond funds this year through July while pulling roughly $60 billion from domestic stock funds, according to the Investment Company Institute. Rather than taking more risk in equities, they're snapping up securities on the riskier end of the bond spectrum: junk bonds. High-yield bonds have had 10 straight weeks of inflows, according to Lipper.
The increased activity from retail investors -- even if it is heavily tilted toward bonds -- is a sign that they're more confident in markets and the economy, analysts say. Separate data shows outflows from stock markets this summer are milder than they were last year, with investors pulling $17 billion from stock funds so far in June and July, compared with $38 billion pulled from the funds June through August last year, according to Morningstar.
"Last summer there was a panic," says Kevin McDevitt, a fund flow analyst with Morningstar. "Investors are less fearful now."