The ‘Smart Money’ Is Flashing a Warning for Stocks
Institutional investors may again be mistiming their full-throated support of equities.
How high is too high?
Photographer: Timothy A. Clary/AFP via Getty Images
For as long as I can remember, institutional investors have been hailed the “smart money” and retail investors derided as rubes. I’ve always been skeptical of those labels. I’m not saying ordinary investors don’t do foolish things with their money occasionally; I just doubt the average pension or endowment or hedge fund is any more disciplined.
My suspicion was reinforced recently when I saw State Street Corp.’s latest institutional investor holdings report, which aggregates thousands of institutional portfolios from around the world collectively worth trillions of dollars. The chart that caught my attention shows changes in the aggregate allocation to equities back to 2000, mostly invested in US stocks. It’s a picture of ill-timed, buy-at-the-top-sell-at-the-bottom maneuvers — precisely the mistakes retail investors are constantly scolded about.