My Favorite Chart
The chart below is my favorite chart, and it’s quite simple. All it does is track money flows into funds investing in different asset categories: stocks, bonds, and cash.
What it tells me is the positioning and sentiment among investors.
Since 2018, nearly $3.6 trillion has moved into cash, with a majority coming in 2020 and after the collapse of Silicon Valley Bank.
Stocks, since 2018, have seen around $600 billion move into them.
Keep in mind that this excludes direct buying and selling of the end asset, for example, individual stocks, T-bills, T-bonds, etc. But in mutual funds alone, there are $21 trillion of assets, and in ETFs, there are around $6.5 trillion, so the sample size is large enough.
I think what this chart is showing today is that people are seeking yield on cash that they haven’t gotten for 15 years and positioning into safe assets is rising just as the stock market is achieving, and continues to achieve, double-digit returns. This could be a future tailwind that helps move the market forward for years.
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Ultimately, cash levels for every individual vary greatly, but the total level of cash assets likely should not be outpacing the rest of the market. The natural next step for cash is bonds, as they look and feel somewhat similar. But in reality, and you can partially see this in 2021, cash levels barely moved and all the money went into stocks and government bonds.
The only thing cash has to do is move to jumpstart markets further. Because if that cash shifts to bonds, bond yields will fall, as will corporate cost of capital, thus increasing future cash flow values and market values. If that cash jumps straight to stocks, or we at least don’t see the cash number continue to grow and stocks come into favor, that could have a 2021 effect on the stock market.
The high level of cash assets is due to people's fear. However, as they recognize that the long-term outlook isn't bad, these assets will shift towards riskier investments, a trend we as asset managers aim to stay ahead of.
This chart is updated every week and it’s always on my Monday list of things to check in on.