1. Today's blog post shows the surge in the amount of capital that S&P 500 Index companies have committed to stock dividends and stock buybacks since the quarter (Q1'09) in which the index bottomed in the last bear market.
2. As indicated in the chart, using first quarter data points, the S&P 500 Index increased its combined outlays (dividends + buybacks) from $83 billion in Q1'09 to $234 billion in Q1'17 (preliminary), or an increase of 181.93%.
3. With respect to the nine quarters referenced in the chart, 59.14% of the capital spent went to stock buybacks, while the other 40.86% was spent on dividends.
4. Combined distributions have been above the $200 billion mark for 15 consecutive quarters (not in chart), according to S&P Dow Jones Indices. The all-time high for this combined distribution was $258 billion, set in Q1'16.
5. As of Q1'17, preliminary data puts cash and equivalents held by the companies in the S&P Industrials (Old), defined as the S&P 500 minus Financials, Utilities and Transportation companies, at a record $1.496  trillion, according to S&P Dow Jones Indices.
6. The S&P 500 Index closed 6/21/17 at 2,435.61, 0.73% below its all-time high of 2,453.46 established on 6/19/17, according to Bloomberg.
7. Bloomberg's 2017 and 2018 earnings growth rate estimates for the S&P 500 Index were 15.37% and 12.04%, respectively, as of 6/21/17.
8. Investors should be encouraged by the fact that companies are not only distributing hundreds of billions of dollars to shareholders via dividends and buybacks, but appear to have the wherewithal to keep this trend going, in our opinion.

View from the Observation Deck 

1. Today's blog post on equity mutual fund net cash flows is a follow-up to the one we did on bond mutual fund net cash flows on 6/15/17 (click here to view). 
2. From 2007 through April 2017, investors liquidated a net $1.11 trillion from Domestic Equity funds, while pouring a net $481.02 billion into World Equity funds, according to the ICI.
3. Year-to-date through April 2017, investors liquidated a net $47.80 billion from Domestic Equity funds, while funneling a net $13.09 billion into World Equity funds, according to the ICI.
4. As indicated in the chart, Domestic Equity funds reported net cash outflows in every year except 2013, when they took in a net $18.10 billion. World Equity funds, on the other hand, only experienced net outflows twice (2008 & 2016).
5. From 12/31/06 through 4/30/17, the S&P 500 Index posted a cumulative total return of 109.72%, compared to 18.86% for the MSCI Daily Total Return Net World ex U.S. (USD) and 36.66% for the MSCI Emerging Net Total Return USD, according to Bloomberg. The disparity in these returns implies that U.S. stocks were likely driven higher by institutional investors, not retail investors, in our opinion.
6. Over the past decade, one source of institutional demand has been stock buybacks. From 2007-2016 (2016 data preliminary), the companies in the S&P 500 Index spent $4.31 trillion on buybacks, according to S&P Dow Jones Indices.
7. While it is possible that some retail investors have shifted capital from Domestic Equity funds to exchange-traded funds (ETFs) of a similar type, World Equity fund investors can do the same. As of April 2017, there were 800 Domestic Equity ETFs, compared to 629 Global/International Equity ETFs, according to the ICI.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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View from the Observation Deck 

1. As indicated in the chart, with the exception of 2013 and 2015, investors appear to have had a big appetite for bond mutual funds since 2007, which was just one-year prior to the punishing 2008-2009 financial crisis.
2. From 2007 through April 2017, investors poured a net $1.31 trillion into bond funds, according to the ICI. Year-to-date through April 2017, net inflows totaled a whopping $89.33 billion, up from $36.35 billion over the same period in 2016.
3. The ICI reported that total net assets in bond funds (not shown in chart) rose from $1.68 trillion in 2007 to $3.82 trillion in April 2017.
4. While some investors may have been looking to take advantage of falling interest rates, others were seeking a safe haven from stocks, in our opinion.
5. Bonds tend to perform well when interest rates decline. From 12/29/06 through 4/30/17, the yield on the benchmark 10-year Treasury note (T-Note) declined by 242 basis points, from 4.70% to 2.28%, according to Bloomberg. 
6. We nearly experienced the start of the great rotation in 2013, when the yield on the 10-year T-Note spiked 127 basis points from 1.76% (12/31/12) to 3.03% (12/31/13). Interest rates, however, reversed course early in 2014 and trended lower  following the poor GDP showing in Q1'14. The initial report was -2.1% annualized, but it was later revised to -0.9%, according to the Bureau of Economic Analysis.
7. In 2013, bond funds reported net outflows totaling $70.77 billion, the highest amount of net outflows from this group in the last 30 years (not shown in chart), according to data from the ICI. 
8. Looks like the great rotation out of bond funds could be on hold until interest rates trend higher, in our opinion.

This chart is for illustrative purposes only and not indicative of any actual investment.

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View from the Observation Deck 

1. Today's blog post is an update of one we do on an ongoing basis. Investors can compare today's snapshot to the one we did on 4/13/17 (click here).
2. Growth style investing tends to outpace value style investing when the earnings growth rates of companies accelerate faster than the broader market, such as right after the economy exits a recession.
3. In today's chart, the S&P 500 Pure Growth Index outperformed its value counterpart in five of the six periods. Growth investing topped value investing for the 15-year, 10-year, 3-year, 1-year and year-to-date periods through 6/9/17.
4. The returns were as follows (Pure Value vs. Pure Growth): 15-yr. average annualized (10.05% vs. 11.04%); 10-yr. average annualized (7.74% vs. 10.44%); 5-yr. average annualized (18.53% vs. 16.73%); 3-yr. average annualized (5.84% vs. 8.54%); 1-yr. (16.37% vs. 16.43%) and Y-T-D (4.52% vs. 13.96%).
5. For the 12-month period ended April 2017, estimated net inflows to Large Blend mutual funds and exchange-traded funds totaled $108.0 billion ($168.8 billion "Passive" vs. -$60.8 billion "Active"), according to Morningstar. It was the second-highest total behind the estimated net $116.9 billion taken in by Intermediate-Term Bond funds and ETFs.
6. For comparative purposes, Large Growth mutual funds and ETFs reported estimated net outflows totaling $98.7 billion ($19.9 billion "Passive" vs. -$118.6 billion "Active"), while Large Value mutual funds and ETFs reported estimated net inflows totaling $12.7 billion ($43.3 billion "Passive" vs. -$30.6 billion "Active").

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score. Constituents are drawn from the S&P 500 Index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance.

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