Trends from the first quarter reveal large U.S. funds shied away from domestic stocks as they favored investment in other markets, particularly the Netherlands, Canada and Israel.
Investment managers sold 2,598 more U.S. stocks than they bought during the first quarter, according to GuruFocus data from around 4,400 funds with assets exceeding $100 million, the minimum requirement for reporting to the SEC. In all, the funds bought domestic 104,510 stocks and sold 107,108.
Investor cash has moved in similar directions, out of domestic equity funds and into nondomestic equity funds, this year. According to Thomson Reuters Lipper, domestic equity funds saw outflows of $6.26 billion in the first quarter, while nondomestic equity funds received $10.91 billion in inflows. Withdrawal from domestic funds has accelerated in the second quarter to date, almost quintupling to $30.63 billion. Nondomestic funds also experienced $1.98 billion in outflows for the same period.
Investors’ redemptions have come as the S&P 500 advanced 8.87% year to date, with a rebound from one significant dip in mid-May to new record highs. The index gained about 0.8% on June 1 as investors anticipated a positive monthly jobs report.
Yet factors including political and policy uncertainty and record-high markets have continued to concern investors in even passively managed exchange-traded funds. U.S. equity ETFs lost $1.3 billion in the week ended May 25, the fourth straight week of outflows, according to FactSet. Meanwhile, investors poured $6.2 billion into international equity ETF holdings.
At U.S. funds, the most-dropped individual S&P 500 stocks in the first quarter were Apple (AAPL, Financial), Microsoft (MSFT, Financial) and slower-growing stalwarts Johnson & Johnson (JNJ, Financial), General Electric (GE, Financial) and Procter & Gamble (PG, Financial). The investors favored faster growers Amazon (AMZN, Financial) and Facebook (FB, Financial), along with Microsoft, Johnson & Johnson and Exxon Mobil (XOM, Financial).
The selection of value-oriented investors tracked by GuruFocus were most apt to sell Microsoft, Bank of America (BAC, Financial), Apple (AAPL, Financial) Google (GOOG) and Cisco (CSCO), preferring health care stocks Allergan (AGN), Gilead Sciences (GILD, Financial) and Amgen (AMGN, Financial), as well as CVS (CVS, Financial) and Qualcomm (QCOM).Ă‚
In addition to the conditions pushing investors out of U.S. stocks, the promise of greater returns formed a motivation to move money abroad, such as to the Netherlands. The country topped U.S. funds’ list of markets attracting investment; it saw 283 net new stock buys, with 1,130 in all and 847 net sells.
The Netherlands has an expected future annual return of 9.3%. The formula used to predict the number includes a contribution of economic growth in local current prices of 2.2%, dividend yield of 2.23% and valuation reversion to the mean of 4.86%. The expected future annual return for the U.S. is minus 1.0%. In a ranking of future returns by country, the Netherlands comes in fourth and the U.S. is penultimate, above Germany.
