From IBD Making $ in Mutuals:
The ibd mutual fund index has plunged below its 200 day moving average, after successfully bouncing off it 3x since Dec. Several of the funds hold smaller companies which have been ignored by the market in recent months. Large cap blue chips have stolen the show, helped by huge flows into index funds. The ? is, are the actively managed growth funds selling the blue chips to the index funds as the stocks pe ratios move higher? Or are growth managers hoping to tag along for the ride until the momenum shifts? Coke has been growing eps 18%, but has a pe of 43. P&G is growing eps 14%/yr and pe of 26. Some managers note that they've NEVER seen these kinds of premiums to their earnings growth rates. Vanguard Index 500 is the best selling fund now. Investors have learned that the fund has beaten 80% of all stock funds in the last 1,3,5,10,15 yrs. It took $2B in first 2 mo of this year. As money comes in, it invests in large caps in the index, no matter what. Vanguard had 10B in 94, 17B in 95, 30B at 96, and gone up another 6% this year (now 34B). It seems many investors are comfortable w/ idea tht index funds do well in long term. And Vanguard has supported that notion... since most remain fully invested in stocks in an index w/ no regard to earnings or valuations, pure index funds may fall faster than many actively managed funds in the short run.
Just like the herd, investing willy nilly in the latest overvalued thing, expecting more of the same forever, while completely ignoring what is truly cheap at the time. I remember when Foreign bonds were in a free fall in 94 till many Brady's reached 25% interest returns on the severely beaten down coupons! My dad made 40% last year on the Brady closed end I recommended to him as it simply bounced back to normal. Now, with the s&p up nearly 90% in the last 2 years, everyone wants into it!!! Just like every mania before. Don't know how long we'll have to wait for the tide to turn, but you won't catch me throwing in the towel on something spectacularly cheap but unpopular so I can buy something outrageously expensive but all the rage. I'm waiting for the 10K to finally appear and once again give the shares a lift. This thing always sells off before earnings are reported or 10's are filed. |
