According to Marketwatch, investors fled global equity mutual funds to the tune of $2.39 billion last week, compared to a net in-flow of more than $2.7 billion in the week prior. What does this mean? If we use the lemming-like retail investors as a contrarian indicator, this is a screaming buy signal.

But there's a problem for mutual funds: If these retail investors are prone to buy at the tops and sell at the bottoms, their redemptions force mutual funds to buy and sell at precisely the wrong times. In January, I wrote about how this trend can effect mutual fund performance. I referred to a recent study that has shown that "liquidity-motivated trades" underperform trades made based on fundamentals. Mark Hulbert has suggested that investors consider using ETFs which, because they are closed-end funds, are not as vulnerable to shareholder redemptions.

I believe that investors should take a long look at exchange-traded funds for this, among other reasons. ETFs are often lower cost, easier to trade, and ideal for making macroeconomic bets. To learn more about ETFs, visit etfconnect.com.

The lemmings are running! Investors flee mutual funds originally appeared on BloggingStocks on Sun, 04 Mar 2007 10:10:00 EST. Please see our terms for use of feeds.