Sunday, September 5, 2010

Fundamentally - Have Investors Been Unfair to Domestic Stock Funds? -

I've posted a few times about how investors are fleeing domestic stock funds for just about any other asset classes, even overseas equity funds that historically have had a very high correlation with the U.S. market.

Here's an excerpt from Paul Lim's column this AM in the New York Times:

So far this year, on a net basis, more than $11 billion has actually gone into funds that focus on shares of companies based in the emerging markets, according to the Investment Company Institute. And an additional $17 billion has been invested in other foreign equity funds, including those that specialize in the developed markets of Western Europe and Japan.

In fact, upon closer examination, one major type of equity fund has been bleeding most of the assets: domestic stock portfolios.

According to the latest figures from the institute, funds that invest primarily in stocks based in the United States have had net outflows of nearly $30 billion this year, after losing nearly $40 billion in 2009.

I suspect this is really more of a "the grass is always greener" syndrome than any detailed analysis on the part of investors. That is, we're all familiar with the large fiscal and economic problems that we face here in the United States but are considerably less knowledgeable about overseas markets. Thus, we believe that the "grass" must be greener somewhere else other than at home.

But, with the U.S. still representing about 1/2 of the world's GDP, is does is make sense that foreign markets are really going to be a good refuge.

Not so far:

After all, a big reason for concern about the global economy is a slowdown in Europe, prompted by its debt crisis earlier this year. So far this year, the Morgan Stanley Capital International EAFE index (for Europe, Australasia and the Far East) is down by nearly than 7 percent, while the Standard & Poor’s 500-stock index of blue-chip domestic shares is off by less than 1 percent.

These choices may have less to do with investors’ appetite for European stocks and more with entrenched anxieties about the markets in the United States.

Fundamentally - Have Investors Been Unfair to Domestic Stock Funds? -