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December 1, 2017

Despite Stellar Equity Returns, Some Investors Are Turning to Money Market Funds

by Tom Roseen.

by Tom Roseen.

Investors pushed the S&P 500, the Russell 2000, and the NASDAQ Composite to new all-time highs after Adobe Analytics showed online shoppers had spent $1.52 billion on Thanksgiving Day and with pre-holiday sales data hinting at a firm 18% year-over-year growth in November sales. However, many investors chose to sit on the sidelines, with money market funds attracting some $42.5 billion year to date through the Lipper fund-flows week ended November 29, 2017.

The cyclical bull market, which started on March 9, 2009, appears to be getting a little long in the tooth for some investors. Over the last eight and almost three-quarters years the NASDAQ Composite, the Russell 2000, and the Dow Jones Industrial Average Price Only indices have produced eye-popping returns of  441.84% (+21.35% average annualized), 349.85% (+18.79%), and 270.74% (+16.19%), respectively.

Hopes for tax reform, the fairly strong economic data, and the particularly robust Q3 2017 earnings appear to be driving the three major U.S. indices to new all-time highs. Thomson Reuters’ Proprietary Research team reported that 73% of the S&P 500 constituents reporting Q3 earnings so far have beaten their analyst estimates. But some nervous investors appear to be betting that valuations have become overextended and have padded the coffers of money market funds in 16 of the last 23 weeks. For the fund-flows week ended November 29, investors injected some $33.1 billion net into money market funds, their largest weekly net inflows since the week ended October 23, 2013.

With the huge market declines witnessed during the dot-com and financial crises still in many investors’ memories, one can’t blame investors in or nearing retirement for their market skittishness. Ignoring the flows into equity ETFs (+$249.7 billion year to date), even though equity returns have been stellar conventional fund investors have redeemed some $96.4 billion from equity fund coffers year to date as they attempt to protect the hard-won profits gained over this recent cyclical bull run against the inevitable market decline.

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