US stocks: Folks are still buying them.
ETFs and mutual funds dedicated to US equities took in $13 billion on net over the latest weekly reporting period. It was the 10th straight inflow and the 12th in 13.
As the updated figure below makes clear, the word “inexorable” isn’t hyperbole in this context. Investors are convinced of the “TINA” narrative — determined there’s no alternative for US stocks at a time when both the European and Chinese economies are struggling, and considering the extent to which US cap-weighted benchmarks have become a proxy for the AI narrative.
With this last week’s influx, US equity funds have seen $162 billion of inflows since the election, $236 billion since the Fed first cut rates in September and $464 billion for 2024 as a whole.
We probably won’t make it all the way to $500 billion, but it’ll be close enough. The record’s ~$400 billion during 2021. We eclipsed that with a month and a half left on the calendar.
Elsewhere, European shares suffered an 11th straight week of outflows (and a 15th in 16), while emerging market equities managed a second week of inflows.
The figure above shows you the weekly breakdown by region for all of 2024. There’s a lot of blue in there.
All told, global equity funds have seen $670 billion of net inflows for the year. The split’s $1.08 trillion to ETFs and $410 billion from mutual funds.
The updated figure on the left, below, serves as a poignant reminder that the epochal active-to-passive shift’s ongoing, and it turned particularly acute in recent weeks.
The figure on the right gives you a sense of the longer-term trajectory. Since 2014 — so, looking back a decade — active mutual funds investing in US stocks have seen $3 trillion of outflows, with virtually all of that AUM “re-allocated” passively.
If your question is whether that shift has implications for the pricing of stocks, the answer’s obviously “yes.”
I’ll quote Howard Marks on that latter point. “The wisdom of passive investing stems from the belief that the efforts of active investors cause assets to be fairly priced,” he wrote in 2017, when his memos were still worth reading. “But what happens when the majority of equity investment comes to be managed passively?”
I’m sure you’ve got an answer to that question. Want to share?
But what happens when the majority of equity investment comes to be managed passively?”
Answer: The stock market will be prone to violent and extreme swings.
This answer is based on my experience in owning shares in a publicly traded company, in which the CEO/founder owns 94% of the shares. In the last 10 years, he has never sold any, but the 6% that is publicly traded is subjected to extreme manipulation – in both directions. The resulting investment situation, for the few outside investors, is nothing short of “volatile”- as in similar to living with someone who is on the spectrum of “manic depressive”. This requires an investor to be a believer in the long term potential success story (in order to make money) of any company, or pool of companies, in which one passively invests.