WRONG AGAIN

We recently published a chart (What The Market Offers) showing just how long retail investors have been wrong when it comes to investing.

Well, despite the MSM ballyhoo about a current rotation, supposedly following the one that never happened earlier this year, it looks as if retailers are setting themselves up for being wrong again.

This week's issue of Barron's featured an article about a Great Rotation that didn't happen but another one that seems to be in full swing

But there's a lot more going on here than investors exiting stocks and going into bonds. A closer look at what's driving the flows in each category points to a very different Great Rotation -- for stocks, out of active funds and into passive ones, and for bonds, out of the safe and into the unknown.

According the article, "July was the third consecutive month in which investors pulled money out of U.S. equity" funds and sent that green stuff to what is perceived by them as safer haunts or so-called index funds.

To use the jargon of the Street this money is flowing from active management to passive management, one of the reasons being how poorly active engagement has done during this crazy year and that active usually takes a greater bite from investor pocketbooks.

Well, spare you the large numbers just suffice it to say they are big especially if you happen to be one of the bigger fund mangers like Vanguard or Fidelity. Now most of us know about the low-interest rate, yield-starved scenario of recent months and how investors have crawled farther out on the risk limb to try to compensate.
   
Fidelity better known for active management has seen large outflow while Vanguard one of the stalwarts in passive or index management has seen huge inflow. Recall that John Bogle the founder of Vanguard is a big advocate of index investing. But there's another story here.

Over in the bond market both active and passive funds have seen huge inflows. This money, per Barron's, is not flowing into traditional bonds funds any longer, but some new puppies on the Street geared toward eliminating interest rate risk. The new players are so-called "unconstrained, flexible, go any-where" funds.

If that sounds a bit more risky you might be on to something. And again, according to Barron's, most of these funds are run by new managers who have never experienced volatile interest rates scenarios.

And today's Wall Street Journal ran a story about how big money is now flowing back into these lower-rates or junk bonds.

Large institutions are snapping up U.S. junk bonds, taking advantage of a price slide triggered by an exodus of individual investors. 

Many big money mangers say they remain bullish on these risky corporate bonds despite concerns that the market is overheated and worries that geopolitical unrest could fuel a rush to safer assets. 

Here's a quote from the WSJ piece from a high-yield manager that summarizes the matter:

Investors who panic in these selloffs--it's the wrong thing to do...."
t.man hatter