Investors flee market at crisis-level pace

Where to invest amid a volatile market?
Where to invest amid a volatile market?

Recent market volatility has sent stock market investors rushing for the exits and into cash.

Outflows from equity-based funds in 2015 have reached their highest level since 2009, thanks to a seesaw market that has come under pressure from weak economic data, a stronger dollar and the the prospect of monetary tightening.

Funds that invest in stocks have seen $44 billion in outflows, or redemptions, year to date, according to Bank of America Merrill Lynch. Equity funds have seen outflows in five of the last six weeks, including $6.1 billion in just the last week.

U.S. equities have been particularly hard-hit, with the group surrendering $10.8 billion last week, BofAML reported.

To be sure, the trend could be interpreted as a buy signal. In 2009, the stock market was in the throes of a 60 percent Great Recession plunge that led to unprecedented levels of stimulus from the Federal Reserve—and the birth of a huge bull market that has pushed stocks up more than 200 percent.

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The moves out of equities come as the S&P 500 has been essentially flat for the year, though getting there has seen numerous dips and spikes. The Dow industrials are off about 0.8 percent in 2015, while the Nasdaq tech barometer has been the strongest of the three major indexes, gaining 2.7 percent.

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Funds focused on cash and investment-grade and government bonds gathered $12 billion in assets last week.

Money market funds have just shy of $2.7 trillion in assets despite their promise of basically zero yield, according to the Investment Company Institute. That number has stayed essentially flat over the past year.

Bond funds have seen 12 straight weeks of inflows; those focused on higher-quality debt have had 66 straight weeks of inflows.

Trends in the $2.1 trillion exchange-traded fund industry help show investors' mentality.

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The biggest outflows—by far—have come from the most popular ETF, the $193 billion SPDR S&P 500 plain-vanilla fund that tracks the index of the same name. The "Spider" as it is called has surrendered $26.1 billion this year, more than eight times the second-biggest outflow victim, the iShares MSCI Emerging Markets fund, which has given up $3.2 billion, according to ETF.com.

Funds with the biggest inflows for 2015 are two that hedge against currency risk, a common theme in a year when the dollar has surged 8 percent against a trade-weighted basket of its global competitors.

The WisdomTree Europe Hedged Equity fund has attracted $9.8 billion, while the Deutsche X-trackers MSCI EAFE Hedged Equity fund has pulled in $4.7 billion. The funds have posted respective gains of 18.2 percent and 12 percent.