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 Those investors have clearly favored international stock funds over
domestic choices this year, despite record high U.S. equities
prices.
Even brisk growth in the U.S. economy, which has outstripping that
of many global peers, has not moved mutual fund buyers, who have
poured more than 50 times as much into international funds as
domestic funds in 2014.
So far this year, mutual fund buyers have added about $1.6 billion
in net new cash to domestic stock funds, according to data from
Thomson Reuters unit Lipper.
"That's almost a rounding error," said Tom Roseen, head of research
services at Lipper, noting the $87.5 billion of inflows into
non-domestic stock mutual funds.
Mutual funds are often thought to represent the behavior of retail
investors, with exchange-traded funds standing in for institutional
buyers such as hedge funds and pension funds.
Those figures contrast with how stocks have actually performed this
year. The S&P 500 is up about 7 percent, while MSCI's all-country
world index ex-U.S. is down 9 percent.
It could be, then, that retail investors are looking to buy cheap,
Roseen said.
Or they could still have long memories of the credit crisis, because
household net worths slide sharply and have yet to recover. "Either
they've gotten smarter or they're just on autopilot," Roseen said.
No less an investing authority than Warren Buffett has urged
ordinary people to invest in America. "In aggregate, American
business has done wonderfully over time and will continue to do so,"
he wrote in his annual letter to investors this year.
"Though we invest abroad as well, the mother lode of opportunity
resides in America," wrote Buffett, the second-richest person in the
world, according to Forbes magazine.
Certainly the U.S. economy is bounding past many other developed
nations. The world's biggest economy grew at a 3.9 percent annual
pace in the third quarter. Compare that with sluggish euro zone
growth and a Japanese recession.
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It could simply be that the numbers are not enough to persuade
retail investors, many of whom saw their assets plummet during the
crisis. The median net worth of U.S. households slumped from
$135,700 in 2007 to $81,400 in 2013, according to the Pew Research
Center.
Morningstar data also underscore the preference for international
funds among investors. The data, which does not separate mutual
funds from exchange-traded funds, shows that U.S. equity funds
attracted $39.8 billion in new cash in the 11 months to Nov. 30.
International equities, however, brought in $140.9 billion, the data
shows.
A separate category, called sector equity, which contains funds that
invest in both U.S. and non-U.S. equities, had inflows of $51.0
billion.
"They (retail investors) don't have the confidence in the market,"
said Neil Hennessy, chief investment officer of Hennessy Funds.
While stocks are intangible, he said, people's houses are all too
real - and thus the fear of the financial crisis lingers.
"That's where it gets scary," he said.
(Reporting by Luciana Lopez; Editing by Jennifer Ablan and Steve
Orlofsky)
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