More than $1.2 trillion has been redeemed from equity mutual funds since September 2008, and retail outflows year-to-date through September have surpassed $89 billion-on pace to be greater than all of the money that fled mutual funds in 2008, said Ron O'Hanley, president of asset management and corporate services at Fidelity Investments.
O'Hanley made the observation in a keynote speech titled "Where Are Thou, Equities?" at Fund Forum USA's Global Funds Distribution Summit in Boston.
"What has happened to equities?" O'Hanley asked. Two major factors: "First, the flight from equities has become both a cyclical and a secular trend. Second, tomorrow's requirements for investment results will differ significantly from past success factors."
Endowments have led the institutional move from equities, O'Hanley pointed out. In 1996, 45% of endowments' portfolios were allocated to equities. Today, that's 15%. Likewise, "among 63% of pension managers, risk avoidance has become more important than returns, with 23% making no change to their portfolios and only 14% seeking higher risk," O'Hanley said.
"Institutions are looking to immunize or de-risk their portfolios-and plan to continue moving away from U.S. equities," he said. In fact, the most recent annual survey by Fidelity's Pyramis institutional unit found that 91% of public institutions want more downside protection. "What is facing equities is something that is quite extraordinary. Up until 2007, flows always followed performance."
Analyzing why investors are paralyzed in the face of risk, however, the aversion to U.S. stock funds makes sense, O'Hanley said. Retail investors have become highly sensitized to political and monetary influences over the economy. Most are also close to retirement and cannot stomach another big hit to their life savings.
Retirement Assets, at $11T, Just Above 2007 Peak
U.S. households held $10.7 trillion in retirement assets at the end of 2010, Hearts & Wallets said, culling information from the Federal Reserve Flow of Funds and U.S. Census data. This is just above the previous high of $10.5 trillion reached in 2007, and a big climb from the $2.4 trillion loss in retirement assets in the crash of 2008, when these assets fell to $8.1 trillion.
Total U.S. household investable assets totaled $30.2 trillion at year-end, with $19.5 trillion of that money in taxable assets.
Of the approximately 120 million households with savings, about 30 million, or 25%, have as least $100,000 in investable assets. Conversely, 90 million households, or three-quarters, have not reached this milestone, up from 82 million in 2007.
BlackRock Bond Chief Talks Up Equity Funds
BlackRock Managing Director and Fixed Income CIO Rick Rieder tolf the Schwab Impact conference equities are a better value than fixed income over the long term. Still, there are some early signs of a return economic health that could ultimately lift fixed income along with the overall economy, Rieder said.