Since the start of 2008, U.S. equity mutual funds have experienced totalnet outflows of more than $360 billion. In only one of these years,2013, were net flows to equity mutual funds positive, according tothe Investment Company Institute (ICI).

Related: What you can learn from multialternativemutual funds

This data would be an omen for the U.S. stock market, except forthe fact that these have been years of explosive growth inexchange-traded funds (ETFs).

As the argument goes, if ETFs have captured any flows equitymutual funds have lost, the stock market hasn’t been harmed. It’sjust a shift in investor sentiment, away from actively managed andhigher-cost mutual funds into lower-cost indexed ETFs.

Recently, the ICI changed the way it reports weekly net flows on theStatistics page of its web site, combining data for both mutualfund net flows and ETF net issuance. (Previously, the page showedonly mutual fund weekly flows.)

This gives you a nearly real-time window for following – andexplaining to clients – the story that combined fund flows aretelling about big-picture trends.

What does the current data show?

• The growth of equity ETFs did offset stock mutual fund lossesthrough the end of 2014. However, net outflows from all stock fundsincreased to $96 billion in 2015 and are on pace for about the samerate in 2016. All of the net outflows are in U.S. domestic stockfunds, while world funds have continued to attract new money.
• In 2016, money has been gushing from U.S. stock funds into bondfunds. Total net inflows to bond mutual funds and ETFs areaveraging about $20 billion per month.

Several trends suggested by this data may be important forhelping clients achieve financial goals – especially if the currenttrends continue. For example:

• Baby Boomers are retiring in droves and downshifting risk bymoving money from stock to bond funds. Also, Millennials arestarting to invest, and many don’t seem to have much appetite forequities.

• Investors of all ages suffered portfolio damage in the 2008-09stock market crash, and the memory may be hard to shake. Some fundinvestors may have lost confidence in the U.S. stock market, inpart because they think it’s rigged in favor of high-frequencytraders. Perhaps they also feel there are better economic growthprospects abroad than in the U.S.

If the combined fund flows data continues to show net outflowsfrom U.S. stock funds, it doesn’t mean the U.S. stock market willdecline. It’s possible stock market indexes could be maintained atcurrent levels by demand from pension funds, hedge funds, stockbuy-backs, prop trading desks and central banks.

However, clients may want to assess how the market’s risk/rewardcharacteristics might be different if retail investors go intopermanent retreat. The data doesn’t show they doing that areyet – but it bears watching. See additional thoughts on this trend.