Post by jeffolie on May 23, 2015 4:34:47 GMT -6
ei.marketwatch.com//Multimedia/2015/05/15/Photos/ZH/MW-DM132_us_flo_20150515150659_ZH.jpg?uuid=9b444e06-fb35-11e4-b19f-a4451bf9e534
U.S. stock prices defy fund flow rules
By Anora Mahmudova
Published: May 22, 2015
U.S. stock prices continued to climb the wall of worry over the past week, trading in narrow ranges amid low volatility and lower-than-usual volumes.
This picture wouldn't be that unusual, or even similar to the same period last year, if it weren’t for the steady trend of price appreciation in the face of continued outflows from U.S. equity funds and ETFs.
According to Thomson Reuters/Lipper fund flow data, U.S. investors pulled out $1.8 billion from domestic equity funds, over the week ended Wednesday. That is evenly split between ETFs and mutual funds.
And it isn’t just Americans pulling money from U.S. equities, global investors shifted their focus to European and Asian markets. According to Bank of America Merrill Lynch, U.S. equity funds globally saw $8.5bn outflows this week. That is outflows in 17 out of past 20 weeks totaling $107bn.
Meanwhile, the S&P 500 SPX, -0.22% has gained 3.5% since the start of the year, while Nasdaq Composite COMP, -0.03% is sitting on a 7.7% year-to-date gain. Both indexes are at or near record levels.
James Abate, chief investment officer of Centre Funds, isn't surprised to see the divergence.
“It’s corporations buying their own shares, bidding up prices. Since corporate executives are compensated in options and equity, they have been incentivized to authorize buyback programs,” Abate said.
Indeed, when corporations buy their shares they tend to do so regardless of valuations. “Corporations are price insensitive,” Abate said.
Also read: 5 charts that show stock buybacks are rapidly losing their luster
www.marketwatch.com/story/5-charts-that-show-stock-buybacks-are-rapidly-losing-their-luster-2015-05-21
Stock prices could appreciate further if buyback programs continue. But ultimately, the divergence in fund flows and prices will have to be reconciled at some point.
www.marketwatch.com/story/us-stock-prices-defy-fund-flow-rules-2015-05-22