Some Investors Seem To Be Getting the Message

The message seems to be getting through to some people as the wsj reports today

my bolds and my (italics)

Index-Tracker ETFs Gain Investor Favor
Volatility Drives Shift Toward Stability


By JOHN SPENCE

Investors are abandoning riskier stock strategies in favor of the relative calm and lower costs of plain-vanilla exchange-traded funds.

Through November, ETFs posted net buying, or inflows, of $138 billion for 2008, while long-term mutual funds saw an exodus of $185 billion, according to consultants Financial Research Corp.

"Last year was strong for flows in indexed products as investors preferred funds with lower fees and more stability," said Rob Ivanoff, an analyst at FRC. "Many actively managed funds haven't performed well, and some star managers didn't live up to their fame."

To be sure, market-tracking ETFs took their lumps as well. The largest ETF -- SPDR S&P 500 ETF -- lost 37.2% last year, according to investment researcher Morningstar Inc. Other exchange-traded funds and notes that track stocks and commodities also were socked.
Healthy Inflows

Still, the products continued to enjoy healthy inflows, even though total assets fell during last year's selloff. Overall, ETF assets dropped by more than 20% in 2008 through November to about $482 billion, despite the $138 billion in net inflows for the period, according to FRC. There are more than 800 ETFs listed in the U.S.

In recent months, investors have been moving into index funds managed by Vanguard Group, Fidelity Investments and other fund giants, experts say.

What is behind the trend?

Firstly, many financial advisers and investors use passive funds and indexed ETFs as part of a conservative asset-allocation plan. In general, they have a long-term perspective and haven't been selling during the market downturn. "These investors haven't been panicking," said Scott Burns, Morningstar's director of ETF analysis.

For example, he noted that during November's market nosedive, money actually departed popular bond ETFs such as iShares Lehman Aggregate Bond Fund in favor of ETFs that track stocks. Mr. Burns attributed this to investors with asset-allocation plans rebalancing their portfolios by purchasing stocks.

Secondly,(well this isn't a particularly good idea) short-term traders have been driving trading volume to ETFs, which are baskets of securities that can be bought and sold during the day. For example, overall ETF trading volume spiked this fall along with market volatility. "When markets are this volatile, investors tend to trade whole sectors with ETFs rather than individual stocks," Mr. Burns said.

Finally, in bear markets, many investors go back to basics and focus more on tax efficiency and the fees they are paying, which matter even more in low-return environments. "The same thing happened after the dot-com bust, and snake-bitten investors went into index funds and focused more on asset allocation," Mr. Burns said......