Fund flows flashing that there's danger ahead

Traders on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Investors are still betting on a rising stock market, but they've been doing so with less long-term conviction.

A compelling story is developing from how market participants are allocating cash in 2014. On net they are continuing to push into U.S. equities, but they're doing so now with short-term bets on exchange-traded funds rather than historically longer-term commitments to mutual funds.

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About $35 billion has flown into domestic ETFs, boosting the burgeoning industry's assets to nearly $1.9 trillion, according to the Investment Company Institute, and likely past $2 trillion by year's end.

At the same time, ICI figures show that nearly $28 billion from equity funds has exited the $12.9 trillion (excluding money market) mutual fund space. After an early year surge in inflows, investors have pulled money from stock-based mutual funds for five months running.