The market had a rebound of nearly 50% in the S&P from the March lows to September. Has everyone jumped back into the market to capture these jaw dropping returns? I would say no. I think most individual investors are still sitting on the sidelines in the equity market. The inflows into bond funds so far this year prove this to be true. The majority of inflows into all mutual funds this year went to bond funds. 80% of money flowing into open end mutual funds went this way: 60% to taxable bond funds and another 20% flowed to municipal bond funds.
PIMCO Total Return Bond Fund is the top selling fund of the year and took in $5.5 BILLION in August alone. This one fund now accounts for 13% of the entire taxable bond fund universe to invest in. That is twice the size of the largest equity fund. Other mutual funds to have high volume inflows are the Templeton Global Bond Fund and the Dodge & Cox Income Fund.
I have worried over this equity market run up because the volume has been below the normal trading volume. Is a correction still coming? It looks as though most equity investors still believe so and are showing that belief by not reinvesting in the market. Although some investors have watched the S&P rise and are now concerned they are missing the rally, I think they still have time. It is very hard not to second guess decisions when memories are short. The market was in a complete melt down with financial stocks one year ago at this time. Merrill Lynch, Lehman Bros, AIG were daily headlines. What a difference a year makes!