Following the money in this market might lead nowhere

By Dian Vujovich

Anyone with a modicum of experience under their investing belts knows that deciding where to invest comes with some challenges. Especially when the investing landscape includes a number of problems at home and abroad. Even deciding to “follow the money” before making an investment decision can be confounding.

Let’s begin with where mutual fund funds are flowing.

According to the Investment Company Institute, for the week ending January 11, it was estimated that over $1.4 billion flowed into equity funds. That’s after over $9.3 billion exited the week before.

On that inflow side, about $753 million went into domestic equity funds and $681 million into foreign equity funds. Hybrid funds—they can invest in stocks and fixed income securities—picked up $1.9 billion. The week before about $454 million came into the hybrid group.

Bond funds, on the other hand, continue to rake it in with estimated inflows of nearly $7.9 billion last week and $3.3 billion the week before. Getting the lion’s share of those inflows were taxable bond funds even though year-to-date returns were well under 1 percent. The best of them, high yield and flexible income funds, have returned on average 1.26 and 1.77 percent respectively through Jan. 11th.

As for bonds and what’s going on in Europe, Jeff Tjorneho, head of America’s Research for Lipper, wrote this when reflecting on the bond market in 2011: “In the space of two years we’ve now seen 15 European summits pass and from those, five plans have been put forth to resolve the debt crisis that began with Greece and now also infects Spain, Italy, and potentially even France.

“For the privilege of loaning money to the Greeks bondholders lost about 63% in 2011. Italian bondholders fared better, losing only about 6%. That doesn’t seem comparable by any stretch, but Italian ten-year bonds now yield north of 7%, which was the level reached by Greek debt when it finally had to plead for a bailout. Italy faces yet another recession in 2012, which will surely impact its ability to raise money from potential investors. Spain, Italy, and Greece will all try their hand at refinancing their debt in Q1 2012 and will seek up to 262 billion euros of aid. For Greece long-term financing is still out of reach—the deal to “help” Greece by negotiating a 50% haircut on long-term debt means no one is likely to open their checkbook again anytime soon…”

Returning to our own shores, even though the stock market is off to a rip-roaring start two weeks out of 52 guarantees nothing.

According to market research from TripTabs, during the first 11 months of last year simple savings and checking accounts brought in eight times the money as stock and bond funds and ETFs.

“The real money these days is going straight under the mattress,” said TrimTabs CEO Charles Biderman in a CNBC online story January 17. “The Fed is doing almost everything in its power to entice investors to speculate in overpriced asset markets. Yet investors – particularly on the retail side – are mostly refusing to take the bait.”