US investors pulled out last week a record $65 billion from mutual funds, as their losses compounded from a continued deterioration in the stock and bond markets. According to FT – two-thirds of the money was drawn from equity funds, which saw outflows of close to $9 billion on Oct. 10 alone.
Independent research firm TrimTabs, which publishes detailed daily coverage of U.S. stock market liquidity – reports that equity funds as of October 14 have had outflows of $56 billion, marking the largest monthly drop since fund flows began being recorded almost 20 years ago.
Hedge funds, money market funds and bank savings accounts are also experiencing capital outflows.
Usually when investors dump equities they flock to bonds, this time however, they are leaving bonds as well with the majority going to the safest forms of cash they can find.
In an extreme flight to safety, said Charles Biderman, the chief executive of TrimTabs — both retail and institutional investors were shifting their money to checking accounts, which showed, based on the Fed’s data, an inflow of $142 billion for the three weeks to September 29.
Mr. Biderman said this suggests that customers were pulling money out of savings accounts at smaller regional banks, due to solvency related concerns and putting money into checking accounts at financially stable banks.
In the three years to the end of 2007, US investors put $500 billion into global equity funds earning a total of 25% from the funds during that period. However, these funds have fallen in value by 60% this year.
It is clear investors have become very defensive with their investments and everybody is averting risk in all of its forms, be it credit or equity.