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BOSTON ( TheStreet) -- It's going to take a lot more than yesterday's 3.4% gain in the S&P 500 Index to lure fed-up mutual fund investors back to the fold.
Americans have been in full flight this year, withdrawing $84 billion from U.S. equity mutual funds through Oct. 11 versus $83 billion for all of last year, according to TrimTabs Investment Research.
With yesterday's gain in the S&P 500, the benchmark index is up 14% this month, the biggest monthly increase since 1974. The reason for the rise was Europe boosting a rescue fund to 1 trillion euros ($1.4 trillion) while investors agreed to a voluntary writedown of 50% on Greece's debt.
The rebound came after September's steep decline, a month in which the combined assets of all U.S. mutual funds, including stock, bond, hybrid and money market funds, decreased by $582 billion to $11 trillion.
Investors have lost confidence in the markets due to their volatility, but the asset drop is also driven by a move to more cash-like investments and ETFs, said Leon Mirochnik, a TrimTabs analyst. "I don't think it's a loss of confidence in fund managers, absolutely not," Mirochnik said.
If the current trend of outflows continues, 2011 is likely to be the fifth consecutive year that domestic stock mutual funds have seen significant investor redemptions. Since 2007 through Oct. 11 of this year, investors have pulled $4.1 trillion out of such funds, according to TrimTabs.
They've been stampeding out of equity funds this year on the volatility caused by the European sovereign debt debacle, the weak economy and directionless public policy at home.
The typical individual investor has "an enormous amount of fear of the future and skepticism" about governments' ability to solve the economic problems plaguing the nation and Europe, said Adrian Day, founder and president of Adrian Day Asset Management, an asset-management firm based in Annapolis, Md., with clients who have investment portfolios that average about $750,000.
And that is coincident with the first wave of baby boomers entering retirement. Most have known relatively stable and rising equities markets in their personal investment histories, so the past five years has shaken their confidence in stocks, such that they've switched to ultra-conservative investments such as cash and bonds, and they're not looking back.