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August AAII Asset Allocation Survey: Equity Exposure Declines to a 10-Month Low

Individual investors reduced their exposure to stocks and stock funds last month, according to the August AAII Asset Allocation Survey. The reduction put stock and stock fund allocations at a 10-month low. Cash allocations rose to a 15-month high and fixed-income exposure rose to a five-month high. The survey period covered the entire month of August, with many of the responses recorded before the late-month drop in stock prices.

Stock and stock fund allocations declined by 2.4 percentage points to 65.0%. This is the smallest exposure to equities since October 2014 (64.1%). Even with the decrease, stock and stock fund allocations remained above their historical average of 60% for the 29th consecutive month.

Bond and bond fund allocations rose 0.8%, to 16.3%. The modest increase follows three consecutive months with essentially no change. Fixed-income allocations are now above their historical average of 16.0% for the first time since April 2015.

Cash allocations rose for the fourth time in five months, increasing 1.6% to 18.7%. This is the largest amount allocated to cash since May 2014 (19.2%). Cash allocations were also at 18.7% in October 2014. Even with last month’s increase, August was the 45th consecutive month with a cash allocation reading below its historical average of 24%.

As stated above, the survey period covered the entire month of August. The correction in U.S. stocks did not start until August 20 (when the S&P 500 fell by 4.5%). As such, the survey incorporates, but does not fully reflect, the actions of surveyed AAII members in response to the recent drop in stock prices.

Exposure to equities among individual investors had been trending down somewhat prior to the start of the recent market correction; August was the third out of the last four months to show a decline in stock and stock fund allocations. At the same time, cash allocations have been trending upwards. In addition, our weekly Sentiment Survey has been registering relatively higher levels of pessimism. Bearish sentiment has been above its historical average during eight out of the past 12 weeks. During the entire 52-week period prior to June 2015, bearish sentiment was above its historical average of 30.0% just nine times.

Last month’s special question asked AAII members whether there are any portfolio changes they are postponing until the after the first rate hike by the Federal Reserve is announced. The majority of respondents (62%) said “no.” Many of these members said that they follow long-term strategies or that they make buy and sell decisions based on the attributes of individual securities and funds. Others said that the first rate hike is already priced in or that it will not have any lasting impact.

About 20% said that they are waiting for a change in monetary policy before taking certain investment actions. Several of these respondents specifically said that they are postponing buying bonds or bond funds. Some respondents said that they intended to increase their equity allocations once the first rate hike is announced.

Here is a sampling of the responses:

  • “No, I’m a long-term investor and not a market timer.”
  • “No, the rate change should be small and the market has already taken it into account.”
  • “No, because the fundamentals of a company are more important than interest rates.”
  • “I will reallocate some cash to bonds after interest rates increase.”
  • “Yes, purchasing more bonds after the Fed raises rates.”

August AAII Asset Allocation Survey Results:

  • Stocks and Stock Funds: 65.0%, down 2.4 percentage points
  • Bond and Bond Funds: 16.3%, up 0.8 percentage points
  • Cash: 18.7%, up 1.6 percentage points

August AAII Asset Allocation details:

  • Stocks: 32.0%, down 1.0 percentage points
  • Stock Funds: 33.0%, down 1.4 percentage points
  • Bonds: 3.2%, down 0.5 percentage points
  • Bond Funds: 13.2%, up 1.5 percentage points

Historical Averages:

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 16%
  • Cash: 24%

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.

I am available to comment about this survey or other issues concerning individual investors. My contact information is at the bottom of this email.

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Charles Rotblut, CFA
Vice President and AAII Journal Editor
American Association of Individual Investors
Author: Better Good Than Lucky

P: (312) 676-4337

F: (312) 676-4387

charles@aaii.com

http://www.aaii.com

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