Individual Investors Hang On in Wild Year for Stocks While Pros Sell
Retail investors dive into markets as institutional ones grow more bearish.
During the wildest year for global markets since 2008, individual investors have been doubling down on stocks. Many professionals, on the other hand, appear to have bailed out.
U.S. equity mutual and exchange-traded funds, which are popular among individual investors, have attracted more than $100 billion in net inflows this year, one of the highest amounts on record in EPFR data going back to 2000.
Hedge funds, meanwhile, have been paring how much risk they are taking in stocks or making outright bets that major U.S. indexes will tumble. Mutual funds have increased their cash positions to about 2.5% of their portfolios this fall, up from around 1.5% at the end of last year and the highest level since early 2020, according to Goldman Sachs Group Inc.
Ben Snider, a managing director at Goldman Sachs, said institutional and individual investors often dump stocks in tandem when the economy is slowing and indexes are tumbling. That doesn’t appear to have happened this year, despite the S&P 500’s decline.
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“The fact that you have not seen very much selling from households is surprising,” Mr. Snider said.
U.S. households typically sell about $10 billion in stocks after the S&P 500 falls at least 10% from its peak. Investors yanked money from stock funds in 2015 and 2018, the last times the index suffered annual losses, EPFR data show.
The S&P 500 is on pace for its worst year in more than a decade, marked by volatility that continued last week when the Federal Reserve and central banks around the globe kept raising interest rates.
In the coming days, fresh data on housing and consumer spending will provide more clues on the health of U.S. consumers and how the Federal Reserve’s interest rate increases are rippling through the economy.
Brian Wilkinson, 60 years old, said he has seen worse in the markets. He witnessed the 1987 stock-market crash, remained invested after the attacks of Sept. 11, 2001, and rode out the 2008 financial crisis. The market always bounced back.
With inflation high, he still thinks he has a better shot at earning high returns from stocks than bonds.