Many investors appeared to ditch American stock funds in April, in the biggest exodus since the financial crisis. But far from taking that as a bad sign, some investors view the news as an indication that stocks have more room to run.
In April, U.S. equity mutual funds and ETFs saw outflows of $35.8 billion, according to TrimTabs. That's the biggest move away from American stocks since October 2008. And the bearish tone is confirmed by the flows in the leveraged ETF space, where leveraged short ETFs saw an increase in assets of 4.6 percent, while leveraged long ETFs saw assets dip by 2.5 percent.
While flows information is by nature backward-looking and thus a poor trading catalyst, this bearish tone does stand in stark contrast to recent warnings that stocks are in an exuberant or bubbly condition.
"I actually think it could be a positive for U.S. stocks, because the more people are fleeing equities, the less likely we are to have a crash instantaneously," Boris Schlossberg of BK Asset Management said Monday on CNBC's "Trading Nation." "It's only when we have bubble-kind-of-conditions that leads to very sharp corrections in equities."
Andrew Burkly, head of portfolio strategy at Oppenheimer, takes the outflows as yet more evidence that "this continues to be one of the most unloved bull markets in history."
"If we just look at the flow data throughout the course of the last several years, we have not had those robust flows that we've seen in prior bull markets," Burkly said. "Every time we go out to make 52-week highs, people are just concerned that they missed it, and they're not putting new money to work. And that just keeps perpetuating itself and there's no opportunity."
Still, another reason for the recent outflows may be that investors are turning away from U.S. stocks to pursue global opportunity; as TrimTabs also notes, "global equity funds attract record sums."
And with the proliferation of liquid currency-hedged ETFs like the euro-hedged-Europe-tracking (HEDJ) and the Japan-sans-yen-tracking (DXJ)—both of which have performed admirably this year—gaining attractive exposure to foreign stocks has never been easier for American investors.
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