Every week there are mounds of articles about how retail investors are bearish because of the outflows from equity mutual funds. When was the last time you heard anybody who wanted to invest looking at equity mutual funds? Fifteen years ago institutions and retail investors alike flocked to equity mutual funds. A number of shifts have made investors look elsewhere when investing money.
Technology in the form of indexing, ETFs and cheap online trading have made mutual fund investing less attractive. Data showing that indexing consistently beats mutual funds is widely known. On the institutional side alternative investments such as hedge funds have provided even more competition for mutual funds. Some investment advisers push mutual funds because of the fees they receive but other than that mutual fund investing is in decline.
Bond mutual funds have held up well because it is much tougher for retail investors to buy bonds. The bond market is still a dealer market and bonds rarely come in bite sizes. Add to that the declining risk profile of aging baby boomers and the increase in assets in bond mutual funds makes a lot more sense.
The resounding bullishness in the individual investor sentiment survey, the meteoric rise in margin borrowing and the increase in option trading are probably a better gauge of retail investor sentiment than mutual fund flows.