These Six Charts Show Investors Don't Have Faith in U.S. Stocks

  • Low-volatility ETF inflows and stubborn short interest levels
  • Valuations for defensive industries won't stop going up

Investors Lack Faith, Search for Minimum Volatility

While $3 trillion has been added to equities in 11 weeks and the S&P 500 has recently been points from a record, you couldn’t tell from the behavior of investors. From flows to exchange-traded funds to levels of short interest and valuations for defensive stocks, bearish sentiment rules. Here are six charts that show how skeptical investors still are.

Seeking Safety

Four of the five most popular exchange-traded funds this year are ones purporting to offer less risky investments than the stock market at large, according to data compiled by Bloomberg. Among them is the iShares MSCI Minimum Volatility ETF, which has garnered $4.7 billion in cash, more than any other fund. That compares with its three-year total flow of $7.6 billion.

Buyers Go Missing

The only type of investor buying stocks this year has been the companies that issued them, according to Bank of America Corp. The bank’s institutional, private and hedge fund clients were net sellers of equities in the week ending April 25. On average, those clients have sold a total $1.7 billion in stocks the past four weeks.

Short-Sellers Dig in Heels

The rebound in the S&P 500 hasn’t done much to shake short-sellers of their conviction. Even after wavering in March, the average short interest as a percent of shares outstanding in U.S. stocks is at 4.1 percent, higher than at the start of the year and at one of the highest levels of the bull market.

Mutual Fund Mess

It doesn’t seem investors have regained faith in active managers since the start of the year erased $3 trillion in equity value. They’ve pulled money out of mutual funds for at least eight straight weeks, according to Investment Company Institute. Can you blame them?

The Losing VIX Bet

It’s not hard to see why investors in the first two months of the year developed an affinity for ETFs that pay off when volatility increases. Why they’ve continued to add money to the funds as the S&P 500 slipped into its quietest period of the year is a bit more puzzling. Still, shares outstanding in one security, the VelocityShares Daily 2x VIX Short-Term ETN, remain at an all-time high.

Paying for Defense

Investors started buying defensive industries at the beginning of the year and haven’t looked back. The price-earnings ratios of consumer staples, utilities and telecom stocks have risen faster in the past six months than any other group in the index apart from energy and materials shares, whose valuations have risen amid a drop in earnings.