Table of Contents

 

Chapter 01    Introduction and summary
Chapter 02    Fund flows explained
Chapter 03    Following the flows
Chapter 04    Fund flows as leading, lagging and concurrent indicators
Chapter 05    Fund flows and changing investor demand for funds
Chapter 06    Key signals and trading strategies in the fund flows
Chapter 07    Users of fund flow data
List of Tables and figures

  

Chapter 01    Introduction and summary

  • Fund flows reflect investor demand
  • Fund flows and the financial crisis
    • 2008 equity and bond fund inflows and outflows
    • Sector level flows
  • Declining AUM
  • Fund flow data as a predictor of future market performance

 

Chapter 02    Fund flows explained

  • Aggregating flows by fund group
  • Methodologies for tracking and calculating fund flows
    • Other methodologies
    • Accounting for fund changes
  • Types of funds tracked
    • Open-end funds
    • Closed-end funds
    • Hedge funds
    • Exchange traded funds
    • Variable annuity funds
  • Fund domiciles
    • Currency denominations
  • Types of investor tracked in fund flows
    • Institutional or individual investors?
    • Geographic origins of flows
    • Growing role of Sovereign Wealth Funds in the flows
    • The state as portfolio investors?
    • Domestic pension funds and mutual funds

 

Chapter 03    Following the flows

  • Fund flows and the financial crisis
  • Investor flows into global and emerging markets
    • Follow the growth
    • The end of home country bias
    • Globalisation of asset allocation
  • Flight from and back to the US dollar
  • Demand for commodity funds
  • Real estate boom and bust
  • Signs of recovery
  • Flows to money market funds

 

Chapter 04    Fund flows as leading, lagging and concurrent indicators

  • Flows as a lagging indicator
  • The case for the predictive power of fund flows
    • Weekly fund flows drive performance and performance leads flows
    • High average contemporaneous correlation between weekly fund flows and equity market performance
    • US municipal bond fund study
  • Flows as contrarian and leading indicators
    • Other studies show mixed results
  • International portfolio flows and predictability
    • Custodial flows
    • Why are international flows predictive?

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Chapter 05    Fund flows and changing investor demand for funds

  • Changing investment trends
  • Going global: asset reallocation
    • Outflows from the US
    • Outflows from Europe
    • Outflows from Japan
  • Emerging markets: finding new frontiers
    • Investors build new exposure with BRIC funds
    • Decoupling from the old safe havens
    • Frontier markets
    • Africa, the Middle East and MENA
  • The rise of sector-based investing
  • Easy come, easy go: the rise of ETFs
  • ETFs and sector investment
  • Cash becomes king of fixed income
    • Global bonds
    • High yield bonds
    • US municipal bonds
    • Flows into money market funds from fixed income groups
  • Seasonal and event-driven patterns in fund flows
    • Sell in May and go away?
    • The January effect
    • Tax-loss selling, quarter end activity and end of year window dressing
    • Options expiration-driven fund flows and institutional investor activity

 

Chapter 06    Key signals and trading strategies in the fund flows

  • Emerging markets fund flow trading rule #1
  • Emerging markets fund flow trading rule #2
  • Inflection point trades
  • Country risk signals
  • Excessive flows as contrarian indicator
  • General market liquidity indicators
  • Tepid outflow/inflow signals
  • Global currency signals
    • Case study: fund flows as a USD driver

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Chapter 07    Users of fund flow data

  • Sell-side analysts and strategists
  • Hedge funds
    • The momentum factor
    • Market timing
    • The liquidity factor
  • FX analysts and hedge funds employing FX strategies
  • Central bank international portfolio flow tracking
  • Private wealth management and investment advisors
  • Fund flows as a momentum indicator
    • The  Liquidity Pulse
  • Fund flows and individual funds
    • Fund manager and marketing reaction to fund flows
  • Other fund flow themes
    • A fund flow death spiral: is it worth worrying about?
    • Are fund flows useful in IPO timing and pricing?

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List of tables and figures


Table 1.1: Equity funds net inflows/outflows, 2008 and 2007 (US$m)
Table 1.2: Bond funds net inflows/outflows, 2008 and 2007 (US$m)

Table 2.1: ETFs for short interest as at 15 October, 2008 (US$m)

Table 4.1: Fund flows lag the stockmarket: comparative data, 1985-–2001
Table 4.2: First-order autocorrelation and probability of changes in direction flows
Table 4.3: Correlation of weekly fund flows as % of NAV with equity market performance
Table 4.4: Contemporaneous correlation between muni bond performance and fund flows

Table 5.1: Annual fund flows into GEM, Asia ex-Japan, Latin America and EMEA as % of AUM, 2003–07

Table 6.1: Correlation of monthly fund flow (net buy/sell) with RTS Index


Figure 1.1: Equity, bond and balanced funds AUM, 2008–Jan 2009 (US$trn)
Figure 2.1:    EPFR Global’s method for calculating net fund flows
Figure 2.2: Equity and bond funds by domicile (non-US), December 2008 (US$m)
Figure 2.3: Domicile distribution of fund group assets (non-US), December 2008 (US$m)
Figure 2.4: Korea – net equity fund buying and selling and performance of the Kospi, 2005-08
Figure 2.5: Taiwan – net equity fund buying and selling and performance of the TAIEX, 1Q03-4Q06

Figure 3.1:  Cumulative net fund flows for emerging market equity and bond funds, Jan 1996-Dec 2007 (US$m)
Figure 3.2: Net equity fund flows since 2003 (US$bn)
Figure 3.3: Globalisation of portfolios, 2003-08 (US$m)
Figure 3.4: US real money accounts, 1980–2006 (US$bn)
Figure 3.5: US equity fund flows vs. commodity fund flows, 2004–08 (US$m)
Figure 3.6: US equity fund flows vs. commodity fund flows ex-ETFs, 2004–08 (US$m)
Figure 3.7: S&P GSCI Index Performance, 2004-2008
Figure 3.8: Commodities, financials and real estate sector fund flows, 2004–08 (US$m)
Figure 3.9: All equity fund flows and performance, 2008–Jan 2009 (US$m)
Figure 3.10: High yield fund flows and NAV performance, May 07–Feb 09 (US$m)
Figure 3.11: Equity, bond and money market fund flows, May 07–Feb 09 (US$m)

Figure 4.1: Muni bond fund flow vs. Bond index
Figure 4.2: Fund flow indicator for 3-month forward returns*, Jan 03–Nov 08
Figure 4.3: Correlation between domestic equity mutual fund flows and stock market price changes, Jan 1985–Aug 2000

Figure 5.1: Fund flows movements, US equity funds and combined non-US equity funds, 2003–08 (US$m)
Figure 5.2: Net flows in/out of US equity funds, 2Q03–4Q08 (US$m)
Figure 5.3: Net flows in/out of Europe equity funds, 1Q03–4Q08 (US$m)
Figure 5.4: Net flow in/out of Japan equity funds, 1Q03–4Q08 (US$m)
Figure 5.5: BRIC related equity fund flows, July 05–Jan 09 (US$m)
Figure 5.6:  Cumulative China equity fund flows, 1Q05–1Q09 (US$m)
Figure 5.7: Decoupling theory short-lived- – comparative equity fund flows 2007–09 (US$m)
Figure 5.8: Emerging markets bond fund flows, Jan 07–Apr 08 (US$m)
Figure 5.9: Frontier markets equity fund flows, 2006–3Q08 (US$m)
Figure 5.10: Africa regional equity fund flows, Jan 06–Feb 09 (US$m)
Figure 5.11: Middle East related equity fund flows, Jan 07–Jan 09 (US$m)
Figure 5.12: Middle East regional funds – flows vs, performance, 2008 (US$m)
Figure 5.13: Selected sector fund group flows, 1Q07–1Q09 (US$m
Figure 5.14: Selected sector funds ex-ETFs, 1Q07-–1Q09 (US$m)
Figure 5.15: All equity ETFs cumulative flows, 2004–09 (US$m)
Figure 5.16: All equity fund ex-ETF cumulative flows, 2004-09 (US$m)
Figure 5.17: Net cumulative flows into all US equity funds, 1Q08–1Q09 (US$m)
Figure 5.18: US equity fund flows ex ETFs, 1Q08–1Q09 (US$m)
Figure 5.19: Cumulative flows for non-money market fixed income funds groups, 2007–Jan 2009 (US$m)
Figure 5.20: Weekly money market fund flows, 1Q07–1Q09 (US$m)
Figure 5.21: Weekly flows into high yield bond funds, 1Q07–1Q09 (US$m)
Figure 5.22: US municipal bond fund flows, 2008–Jan 2009 (US$m)
Figure 5.23: Weekly money market fund flows, 1Q07–1Q09 (US$m)
Figure 5.24: Cumulative monthly flows into and out of emerging markets equity funds, 2000-08 (US$m)
Figure 5.25: Total flows into and out of global equity funds by month, 2002–08 (US$m)
Figure 5.26: Total net flows into and out of US equity funds by month, 2004-–08 (US$m)
Figure 5.27: Total net flows into and out of emerging markets bond funds by month, 2000–08 (US$m)
Figure 5.28: Total net flows into and out of global bond funds by month, 2001–08 (US$m
Figure 5.29: Net monthly flows into US small cap equity funds, 4Q03–1Q09 (US$m)
Figure 5.30: Weekly net flows into and out of US large cap ETFs, 1Q07–1Q09 (US$m)
Figure 6.1: Merrill Lynch flow trading rule, emerging markets equities
Figure 6.2: Big inflows mean taking profit in June
Figure 6.3: Returns to a mutual fund flows-based strategy
Figure 6.4: China equity fund outflows in 2007 foreshadow 2007–08 collapse in China equities

Figure 6.5: Value preferred to growth in 2003–08 – flows as % of AUM
Figure 6.6: Country flows, mid-2007–Jan 09 (US$m)
Figure 6.7: Equity fund country flows as % of fund holdings, 2008
Figure 6.8: Russia equity market 1-month leading net buying flows vs. RTS Index returns
Figure 6.9: Monthly dedicated emerging markets equity flows, 2005-08 (US$bn)
Figure 6.10: Weekly net purchases of European equity mutual funds as % of AUM, 2002–07
Figure 6.11: Weekly net purchases of European equity mutual funds as % of AUM, 2002–08
Figure 6.12: Net equity fund buying and selling by country or region, 1Q04–3Q08 (US$m)
Figure 6.13: Comparison of net flows into Europe equity funds, US$/_ exchange rates and Eurozone/US interest rate differentials, 2003–08

Figure 7.1: Monthly net flows into Asis ex-Japan equity funds and end-of-month cash allocations, 2003–08 (US$m)
Figure 7.2: Japan – cumulative net equity fund buying and selling, 3Q01–4Q08 (US$m)
Figure 7.3: Cumulative weekly flows for Japan equity funds, 1Q03–1Q09 (US$m)
Figure 7.4: Europe equity and high yield bond fund flows, 3Q08–1Q09 (US$m)
Figure 7.5: Flows into Hong Kong equity funds as % of AUM, 1Q06–1Q09
Figure 7.6: Cumulative net flows into EM equity funds, 1Q05–2Q08 (US$m)
Figure 7.7: Cumulative net flows into BRIC equity funds, 1Q05–2Q08
Figure 7.8: Seeking exposure to China – selected fund group flows, 2005–Jan 09 (US$m)

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