Americans miss $200bn quitting stocks

A trader works on the floor of the New York Stock Exchange. Much of the damage to investors is self-inflicted as US growth improves and companies whose earnings are most tied to economic expansion reap the biggest rewards. Of the 500 companies in the benchmark index, 481 are higher now than they were in March 2009 or when they entered the gauge.Bloomberg/New YorkAmericans have missed out on almost $200bn of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.Assets in equity mutual, exchange-traded and closed-end funds increased about 85% to $5.6tn since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94% advance, according to data compiled by Bloomberg and Morningstar Inc. The proportion of retirement funds in stocks fell about 0.5 percentage point, compared with an average rise of 8.2 percentage points in rallies since 1990.The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11tn in US equity value was followed by record price swings in equities, a market breakdown that briefly erased $862bn in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325bn, said in a telephone interview. “There’s just so much evidence of this recovery broadening.”The S&P 500 climbed 1.2% to 1,430.15 last week, extending the 2012 gain to 14%, led by financial stocks and consumer companies. The benchmark index from American equity has risen from a low of 676.53 on March 9, 2009, though it is still 8.6% below its record high on October 9, 2007. Now, much of the damage to investors is self-inflicted as US growth improves and companies whose earnings are most tied to economic expansion reap the biggest rewards. Of the 500 companies in the benchmark index, 481 are higher now than they were in March 2009 or when they entered the gauge.Expedia Inc, the Bellevue, Washington-based online travel agency, rallied 577%, leading consumer discretionary companies to the biggest advance from 2009 through the third quarter. Capital One Financial Corp rose 39% this year as the Mclean, Virginia-based lender posted profit that beat projections by 19% last quarter.PulteGroup Inc, the largest US homebuilder by revenue, more than doubled this year after the Bloomfield Hills, Michigan-based company had its biggest annual earnings increase in 2012 and the housing market rebounded.Individuals are selling into the rally, cutting the proportion of assets in stocks to 72% from 72.5% in 2009, according to 401(k) and IRA mutual fund data from the Washington-based Investment Company Institute compiled by Bloomberg. The data is for all equities, bonds and hybrid funds, and excludes money markets. Investors are lowering the proportion of stocks they own in retirement funds during a bull market for the first time in 20 years.The percentage of households owning stock mutual funds has also fallen, dropping every year since 2008 to 46.4% in 2011, the second-lowest since 1997, according to the latest ICI annual mutual fund survey.The technology bubble in the 1990s saw equity mutual funds expand twice as much as the S&P 500. Stocks’ representation in 401(k) and individual retirement account funds rose to about 90% in 2000 from 77% in 1992.Money has gone to the relative safety of fixed-income investments. Managers who specialise in corporate bonds and Treasuries have received nearly $1tn in fresh cash since March 2009, ICI data show. Federal Reserve chairman Ben S Bernanke’s zero percent interest-rate policy and the lowest inflation in almost 50 years have helped spur a 29% rally in debt securities since Obama’s first term began, according to the Bank of America Merrill Lynch’s US Corporate and Government Index through the third quarter.Outflows from stocks muted gains as reduced demand kept companies from going public or expanding through mergers and acquisitions, according to Paul Zemsky, head of asset allocation for ING Investment Management, which oversees $170bn.“Imagine where we could be if we had had positive inflows,” New York-based Zemsky said in a phone interview. “It would be very helpful to get those flows reversed and have that money come out of bonds and into stock funds.”US initial public offerings have raised about $41.2bn this year, about 28% below 2007’s $57bn, data compiled by Bloomberg show. Takeovers announcements have totalled about $524bn in the US this year, down from $585bn at the same point in 2011, data show.IPOs have been most prevalent when economic growth is strongest. Companies raised $96.8bn through public offerings in 2000, the most in the past 13 years, as the economy expanded 4.1%. The lowest year for initial capital was 2009, when the US shrank 3.1%, data compiled by Bloomberg show.While unemployment dropped to 7.7% in November, it’s still higher than the 5.8% monthly average since 1948, data compiled by Bloomberg show. The housing market stagnated until this year, and policymakers have yet to reach an agreement on the so-called fiscal cliff of more than $600bn in tax raises and spending cuts automatically scheduled to hit in January. Republican leaders cancelled a vote on the budget, sending talks deeper into turmoil last week.Companies holding a record $1.03tn of cash on their balance sheets are failing to lure individuals to investment funds even though valuations have been stuck below the average since 1954 for the longest stretch since Richard Nixon was president and bond yields have fallen to near record lows. The S&P 500 trades at 14.5 times reported earnings, a 12% discount to the six-decade average.By reducing yields on fixed-income securities, Bernanke’s has been trying to push investors into riskier assets. Companies in the S&P 500 cut interest to the lowest level in at least a decade, paying 2.39% of sales to cover borrowings in the 12 months ended September 30 on average, data compiled by Bloomberg show.“What investment options do they have? Not many,” James Butterfill, who helps oversee $64bn as head of global equity strategy at Coutts & Co in London, said in a telephone interview. “Corporates are still very attractive, they are the most underleveraged since the early 1990s.”