2023 Rally Sees Investors Dumping U.S. Funds

2023 Rally Sees Investors Dumping U.S. Funds

While U.S. stocks have rallied so far this year, investors are exiting the funds that track them, reports an article in The Wall Street Journal. $31 billion has been drained from U.S. equity mutual funds and ETFs since the beginning of the year, while also plowing $12 billion into foreign equity funds, roughly $24 billion into taxable bond funds, and almost $3 billion into municipal bond funds.

The push into foreign equities shows that investors are still apprehensive about this year’s U.S. stock rally, and the S&P 500 fell 1.1% for the first time in 2023, bringing its gains for this year down to 6.5%. Investor sentiment seems to feel that opportunities lie outside of U.S. borders, and the stampede out of U.S. stock funds emphasizes the split between investors who are still wary of the 2023 rally and those wishing to capitalize on the gains. While some investors are taking refuge in fixed-income assets and purchasing cheaper overseas stock funds, others are doubling down on speculative companies in the hopes that the Fed will slash rates again later this year as inflation eases. However, the Fed has indicated that higher interest rates are here to stay for a while.

Overseas companies have been outperforming their U.S. counterparts for months, fueled by a weakening dollar, appealing valuations, and the reopening of China’s economy, the article contends. S&P 500 companies are trading at about 18 times projected earnings over the next year, while the STOXX Europe 600 and the Hong Kong Hang Seng Index are trading at multiples of 13 and 10, respectively, based on their local currency. That would indicate that markets are still being overly careful. And the divide between ETF sales and individual stock purchases this year is the widest it’s been since 2008, according to analyses from Bank of America that is cited in the article. Purchases of single stocks have climbed to over $15 billion as more than $10 billion has flowed out of ETFs. That could show that investors are leaning more towards active management; last year, stock picking gained popularity as passive investments in U.S. indexes got hammered by high interest rates. It also shows that investors are willing to take on more risk, gravitating back towards speculative stocks, with growth-oriented companies, particularly tech stocks, emerging as some of the top-performing stocks so far this year. And one company has dominated the single-stock buying market: Tesla, which makes up about a third of individual investors’ single-stock net purchases, The Journal reports.


Validea runs stock and ETF models based on investment strategies with proven long-term track records. If you’re new to Validea, consider taking a look at our product overview or introductory videos.