U.S. Equity Mutual Fund Flows


It is hard to find a more real-time quantitative indicator of the retail investor than mutual fund flows.  After five years of very strong US equity market performance, the so-called “mom-and-pop” investors are beginning to view equity investments in a more positive light.

These investors are undoubtedly late to rally and their strategy will likely, as it already has, result in sub-par returns with excessive volatility. Are retail investors a contra-indicator? Yes, but that doesn’t mean an equity correction is imminent either.

After a long enough time of pounding the table with regard to the pitfalls of behavioral risk (e.g. emotional investing), I anticipated that I wouldn’t have been phased by the continually-flawed investment process of the aggregate retail investor.  But human nature is human nature; and given enough time, cycles will infallibly repeat.

Consider the following:


Source: WSJ (paywall)

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