Bob Carey quoted at MarketWatch.com ...

Keeping the Powder Dry

Indeed, for many potential buyers nowadays it pays not to play. Investors have been raising cash in an attempt to keep powder dry, and this summer the already jammed sidelines became even more crowded.

More than $71 billion fled U.S. stock funds in the quarter through Sept. 21, with an exodus of $23 billion in the week of Aug. 10 alone, according to the Investment Company Institute, an industry trade group. About three times as much money poured out of domestic funds in the third quarter as in the previous quarter.

When money did go into stocks over the quarter, it was most often through hybrid or balanced funds that also invest in bonds. For others, pure bond funds were the only good option. As has been the case all year, long-term government bond funds proved especially lucrative. Read more: Why government bond funds surged in the third quarter.

"It's going to be a couple of years before investors are net buyers of equity funds," said Bob Carey, chief investment officer at First Trust Advisors L.P. "Investors want cash flow."

Investors' laser-like focus on stock dividends and bond income will dissipate once the market emerges from its slump, Carey added. "It's not that different from the mid-1990s as we were coming out of the 1990-91 recession," he pointed out. "Five years later everything with a dividend was considered passé."