View from the Observation Deck

1. U.S. equities have posted double-digit returns so far in 2012, yet retail investors chose to liquidate $84.7 billion from U.S. stock funds in the first 10 months of 2012 (see chart).
2. That suggests that institutional investors have been the ones driving the broader stock indices higher. We covered this angle in a blog post on June 6 ("Retail Investors Give Stocks A No Confidence Vote").
3. Retail investors have clearly preferred income-oriented funds, excluding money market funds that offer only a few basis points of yield, over growth-oriented funds.
4. Investors poured $271.9 billion into Taxable and Municipal bond funds in the first 10 months of 2012 (see chart). What is ironic is that many investors seem willing to embrace considerable risk so long as it is accompanied by income.
5. While investors were redeeming $84.7 billion from U.S. stock funds, high yield bond funds reported net inflows totaling $27.9 billion. High yield corporate bonds are speculative-grade securities (High Yield bond fund totals are included in the Taxable Bond category in the chart).
6. Perhaps retail investors will alter their negative bias towards U.S. equities once they perceive less headline risk from such events as the "fiscal cliff" and European debt crisis.