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David Rosenberg’s thoughts on the recent fund flow data:

We are struck by the Investment Company Institute’s (ICI) mutual fund data, which show increasingly that this $3.5 trillion of “dry powder” is being diverted to bond funds, not equity funds. This is not to suggest that we are seeing outflows in the data — indeed they ended when the stock market found its bottom in March. Since that time, U.S. equity funds have attracted $26.5 billion of fresh net inflows versus $124.3 billion for bond funds and in fact, when equities that are really “bonds in drag” are included (ie, growth & income, hybrids), the total since March is over $140 billion. In other words, despite a very flashy 60% rally, driven by short-covering, technical momentum and program trading, the retail investor is not allowing greed to overwhelm his or her long-term resolve. This is fascinating.

Some may point to whether the fund flow data are still useful as a contrary indicator going forward or whether there is a real fundamental psychological shift taking place among retail investors in terms of their assessment of risk, having been burnt by two bubbles seven years apart. I recommend that everyone have a look at Now Even Millionaires See the Benefits of Budgeting on page B5 of the Saturday NYT (a must read on what is transpiring at the upper echelons of the income strata). The article quotes a high net worth financial advisor who said “many of our clients are very happy to be sitting on bond portfolios and cash reserves.” This is certainly a recurring theme I have picked up on from most of the meetings with our client base and the prospects I have visited.

Source: Gluskin Sheff

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