How to stop the bleeding for U.S. equity funds

Will retail investors reverse the trend that saw equity mutual funds register their eight straight month of outflows in December?

Funds that invest primarily in U.S. equities saw US$140-billion in outflows during the past eight months, according to the Investment Company Institute. That figure surpassed the amount recorded at the worst of the 2008-2009 credit crisis, according to Stéfane Marion, chief economist and strategist at National Bank Financial.

The move out of U.S. equities has resulted in the stock-to-bond ratio for mutual funds falling to the lowest since 1994. However, investors do still own more equities than bonds, with a ratio of 1.85.

“At this juncture, we believe that improving economic data in the U.S. combined with a decent Q4 2011 earnings season will provide the impetus that will stop the bleeding in U.S. equity mutual funds,” Mr. Marion said in a research note, reiterating his 2012 target of 1,350 for the S&P 500.