Individual Investors Bail On Everything In December, Data Show


NEW YORK, NY – FEBRUARY 06: Traders work on the floor of the New York Stock Exchange (NYSE) on … [+] February 6, 2018 in New York City. Following Monday’s over 1000 point drop, the Dow Jones Industrial Average closed up over 500 points. (Photo by Spencer Platt/Getty Images)

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Individual investors seem to have caught the jitters in every asset class.

That’s usually a positive sign for the market as a whole, which should come as a relief following a year when stocks and bonds both took a serious beating.

Mutual fund and exchange-traded funds both saw consistent outflows in the five weeks from through December 21. As these funds are typically owned by individual investors we can make a reasonable assumption that it individuals who are taking the step to ditch at least part of their investments.

They are bailing out of funds that specialize in stocks (domestic and foreign), bonds, (taxable and non-taxable), and hybrid funds with both stocks and bonds, as well as commodities, new data show.

Cashing Out of Stock & Bond Funds

In the five weeks through December 21 investors withdrew a net $78.5 billion in funds from their stocks holdings in the U.S. and abroad, according to data released Wednesday y the Investment Company Institute. The outflows occurred over four of the five weeks.

Likewise, bond investors pulled money from their fixed-income funds for four out of the five weeks with a net total of $31.6 billion.

Hybrid fund withdrawals were more consistent with outflows in each of the five weeks. The total withdrawal came to $16.6 billion.

These cash-outs should not surprise seasoned investors. The stock and bond market both fell massively. The SPDR S&P 500 ( SPY ) ETF, which tracks the S&P 500, lost 18.2 in 2022, according to Morningstar. Meanwhile, the iShares iBoxx $ Investment Grade Corp Bond ETF ( LQD ) dropped 17.9%, again according to Morningstar data.

Individual investors have a distressing habit of selling when securities price fall and then buying them again when prices are high. Its a money-losing strategy, of course, but still they do it.

The consistency of the recent sales also indicates a deep level of fear among individual investors, which in turn should lead everyone to see positive returns on the horizon. That’s known as a contrary indicator, and we’ll see if it works in due course.

Investors Flee Commodities Too

Perhaps the biggest surprise was news that for four of the five weeks though December 21, commodities funds saw net outflows of $1.8 billion. It should be noted that the commodities markets are much smaller than either the stocks or bond markets. Its also true that commodities funds are relatively less popular in the U.S.

So, while the $1.8 billion outflow is small it is still significant.

That is also shocking given the returns on the Invesco DB Commodity Tracking ( DBC ), which tracks a wide variety of commodities, gained 19.3%.

What’s tricky to understand is why anyone would bail on a sector that has shown outperformance over stocks and bonds of almost 40 percentage points.

Maybe overblown fears of the allegedly imminent recession are the cause. Whatever the reason, its weird.

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