The latest data on mutual fund flows continues to show that investors are generally hesitant to get back into stocks. According to Credit Suisse bonds (see their full bullish outlook here) continue to be the asset of choice for most investors. They think the tide is about to change:
“Since the start of Q3, US$473bn has left money market funds and US$264bn has gone into the bond mutual funds, while US$12.5bn has found its way out of the equity mutual funds. This has just started to reverse. We think inflows into the equity mutual funds should turn positive from here.”
This idea is supported based on past recessions. Compared to past recoveries US equity mutual funds have seen very modest inflows thus far. Net inflows to equities have yet to turn substantially positive:
The story is much the same in hedge funds:
In sum, the positioning of investors remains very conservative. This has the potential to turn into fuel for the rally going forward. The small investor continues to hate this rally and a final push into equities would likely send stocks higher.