CNBC: Equity Fund Outflows Pre Crisis Pace, Really CNBC?

CNBC posted an article today that says that investors are fleeing out of equity funds at pre-crisis levels.  They claim this is due to volatility increases. I see it slightly different.

Currently the Volatility Index (VIX) displays at approximately 15. Compared to the last market correction, some 40 odd months ago, at 43. Pre-Crisis level (January 2008) the VIX sat at 26. In October of 2008 it sat about 59. So, CNBC – I call bullshit! See some captures of the 5 year and 10 year VIX charts from Yahoo Finance:

vix 10 yr vix 5 yr


Alright, so let’s give CNBC the benefit of the doubt here… Take a look at the flows of funds from investors in the past:

equity-bond flowsI’m not claiming that the U.S. markets are not overdue for a market correction. Typically, investors see that occur approximately every 20 months. The U.S. market has not seen a market correction dating back 40+ months (Summer of 2011). The further we go from the average, the more likely it will happen. However, the market can be irrational longer than you can be solvent.

It seems that Janet Yellen has all but said the Fed will raise rates sometime in 2015. This might be the time that the market starts to see some type of correction… Through all of this, make sure that you’re staying diversified to your risk profile.



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