“Burned by bear markets, investors have pulled $8 billion from U.S. equity funds in 2011?and $51 billion over the past 10 years,” according to Charles Stein’s Bloomberg Businessweek article entitled “Americans Lose Faith in Stock Pickers.”
As investors pull money out of actively managed U.S. domestic equity funds, they are putting money into bond funds, international stock funds, and exchange traded funds that mimic unmanaged indexes. From 2007 to 2010, investors bought more than $100 billion in such exchange traded funds per year. In 2009, the SPDR Gold Trust was the top seller. In 2010, Vanguard’s MSCI Emerging Markets ETF attracted the most money.
All these alternatives have significant risks. Bond funds are vulnerable to a sell-off when interest rates rise. “Bonds have gone up for two decades and people have gotten comfortable with them,” Robert Doll, chief equity strategist at money manager BlackRock, the world’s largest money manager, was quoted as saying, adding that bonds will remain “the preferred asset class,” until people holding them suffer losses. Gold and emerging markets have had big run-ups.
Many investors have left the stock market entirely and are apparently not coming back. “Some people are out of the market, and they are not racing back in,” William Finnegan, senior managing director of retail marketing at Boston-based MFS Investment Management, which created the first U.S. mutual fund in 1924 and now manages $240 billion, was quoted as saying.
Two bear markets have discredited active money managers’ claim that they can beat the market consistently over time. “Actively managed domestic stock funds haven’t demonstrated that they can add value. They have lost their mojo,” one investment advisor was quoted as saying.
The S&P 500 returned 2.7 percent annually, including reinvested dividends, over the last decade, suffering double-digit losses in three of those years, and 56 percent of all actively managed diversified U.S. stock funds underperformed their benchmarks. “People say they invested in our markets and they netted zero in 10 years. Many of them throw that in my face,” another investment advisor was quoted as saying.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions.