Death to U.S. stock funds!

A billion here, a billion there, pretty soon you’re talking real money. — Misattributed to Senator Everett Dirksen

“Oh, I never said that. A newspaper fella misquoted me once, and I thought it sounded so good that I never bothered to deny it.”Senator Everett Dirksen.

The Investment Company Institute is the trade group for the $16.8 trillion mutual fund industry. Each week, it puts out an estimate of how much money has flowed into (or out of) mutual funds. If you’re looking for evidence of a stock mania, you won’t find it here.

Angry villagers with pitchforks.
Angry villagers with pitchforks.

Last week, for example, investors withdrew $223 million more from stock funds than they put in. The past 12 months, they have withdrawn a net $12.2 billion, according to ICI estimates.

The figures are even more stark if you look at the flows for U.S. stock funds. Investors have yanked $113.2 billion from U.S. stock funds since May 31, 2013. During the same period, they have put $21 billion into hybrid funds, which invest in a mix of stocks and bonds, as well as $57.4 billion into bond funds.

These are outflows from traditional, garden-variety stock funds. Some of that money has flowed to exchange-traded funds, although it’s difficult to tease out the exact amount from ICI stats. Nevertheless, it’s safe to say that flows are nowhere near the pace set in 2000, when investors poured more than $26 billion a month into stock funds.

What’s most surprising, however, is U.S. investors’ appetite for foreign stocks. While they have been yanking money out of domestic stock funds, international funds have been the happy recipients of nearly $101 billion of fresh new cash. Part of this may be because most investors use financial advisers, who typically recommend a 20% stake in foreign stocks. U.S. investors have about 25% of their assets in international stocks now, up from 8% in 2000.

How has that all worked out. Sadly and predictably, not too well. The average large-company blend fund has gained about 8.2% the past 12 months, says Morningstar. The average large-company blend foreign fund? It’s lost about 1.4%.

And it’s not because foreign stocks have fared so poorly, although they have been unusually volatile. (We’re looking at you, Greece.) German’s stock market is up 10.4% the past 12 months, and Japan’s market has soared 35%, according to MSCI, which tracks world markets. But that’s in local currency. Translated into U.S. dollars, that’s a 9.9% loss for Germany, and a 13.4% gain for Japan. Unfortunately, many U.S. international funds are underweight Japan, because that’s been a safe bet for nearly a quarter of a century.

Despite how stretched valuations are in the U.S. stock market — and they are stretched — it’s hard to argue that individual investors are getting caught up in stock mania, at least from flows to U.S. stock funds. In fact, it’s easier to argue that investors are still exceptionally wary of U.S. stocks, and that the scars from the last two bear markets are taking a very long time to heal.