McMurtry Investment Report Newsletter – November 2019

Many investors are wondering how the equity market can continue to rise in the midst of all this negative economic and political news. We have all heard the phrase Markets are rising despite the wall of worry.

Obtaining timely relevant stats regarding how investors are placing their money remains a real challenge. Many of us surmise that there is a lot of cash on the sidelines both on a retail and institutional client perspective. But we are not really sure how much cash we are talking about.

Late last month the data indicated that on a 13 week moving average annualized basis there was a $350 billion reduction in equity mutual funds in the US. For comparison purposes the most recent ten year high of $400 billion in redemptions occurred in early 2018.

The net proceeds have been going into bond funds where the 13 week moving average annualized was up by $250 billion.

The same trend of net selling has occurred in Foreign ( Non US) Equity mutual funds, but the magnitude of selling is much smaller at $50 billion in October compared to net selling of $225 billion in early 2019.

In regards to US corporate pension funds, there has been net selling of over $100 billion in equities in the second quarter of this year. The recent high net selling of $150 billion occurred in 2017. In particular private pension funds saw net selling of $50-75 billion while state and local pension funds registered net equity sales of $100 billion.

Bucking this trend were private households that saw net buying over the same period of $10-20 billion.

Since 2009 the US data compares both Gross New Equity Issues by corporations relative to S&P 500 Stock Buybacks. Since 2019 there has been a sharp reduction in equities. In early 2019 there was a net equity reduction (Stock buybacks exceeding New Issues) of $800 billion. Currently the number is still a net reduction of $400 billion.

In regards to US ETF’s new issuance has been declining from almost $475 billion to the current $300 billion. Net purchases of ETF’s was also down sharply from a high of $350 billion to the current level of $175 billion.

Taking both funds and ETF’s into account, net purchases are $25 billion currently, much lower than the high of $375 billion in 2014-2015.

While the Canadian pension fund data is harder to obtain, I do have some info regarding domestic ETF flows.

In Canada from January to October of this year there has been $17 billion inflows into Canadian equity and fixed income funds with the latter taking $11 billion and equity funds taking $6 billion.