Economic Indicators: Mutual Fund Flows
By Ryan Barnes
|Release Date:||Monthly, about four weeks after month\'s end|
|Release Time:||During market hours|
|Coverage:||Stock, bond and money market funds|
|Released By:||Investment Company Institute (
Dollar flows into and out of mutual funds is a modern-day indicator, one based on sentiment but still useful to the wise investor. The Investment Company Institute (ICI) is the most reliable source of mutual fund trends, publishing a monthly report covering domestic and international stock funds, bond funds and even money markets. The ICI is a non-profit organization whose members are the majority of investment companies registered with the Securities and Exchange Commission (SEC). The organization has reported before Congress and presents free information for investors and economists by sampling more than 8,000 mutual funds, closed-end funds, etf (ETFs) and uit (UITs).
The Federal also issues money market figures in its Money Supply Report, and TrimTabs offers daily and weekly data to investors through its website.
Most often, mutual fund flows are presented as the net of all inflows and outflows measured over the period; if total dollars going in is the same as dollars being sold out, total flows over the period will be $0. In the monthly
What it Means for Investors
Stocks and bonds respond to changes in demand like any other investment, and knowing what the prevailing investing trends are can help investors to decide whether the present time is a good one to invest in one asset class or another. While mutual fund flows alone do not determine investor sentiment (institutional money and individual shareholders are excluded in the
That said, strong flows into stock mutual funds does not guarantee good times ahead for equity investors. Some economists even see fund flows as a "false positive", or contrarian indicator, with the logic being that most people commit more money to the stock market when it has already run up, and has received a lot of positive press and mainstream coverage. A recent and powerful example can be seen in the last few months of the stock market peak back in early 2000. Stock market flows were at record levels those first few months; soon after, the stock market began a steady march downward, with major indexes dropping more than 50% in the next year.
If the market is coming out of a recession or other weak period, seeing fund flows grow in stock funds can be a positive indicator, suggesting that investors are increasing their allocations for stocks. When mutual fund managers have more cash coming in, they have to go out and purchase stocks on the open market to keep their portfolio percentages in the right proportions.
Money market fund flows can be read in a similar way, with increasing flows being seen as a sign that stocks may be undervalued, and vice versa. (To learn more, read Money Market Mutual Funds.)
- Valuable source of investor sentiment
- Information available for other countries; ICI even provides a "worldwide" figure
- Valuable for seeing fund manager sentiment through average cash levels (considered a defensive asset class)
- Can be interpreted in different ways (such as a contrarian indicator)
- Does not show total market ownership - only mutual funds
- Difficult to separate secular trends in fund ownership from market timing situations month to month
The Closing Line
Fund flows may be seen as esoteric, but smart investors should consider adding this to their arsenal of indicators to know and study, understanding that stock and bond markets have supply and demand patterns that may be distinct from economic activity.
Economic Indicators: Non-Manufacturing Report
A survey by the Conference Board that measures how optimistic ...
The risk of receiving lower or negative returns early in a period ...
The difference between the highest current bid price among dealers ...
A catalyst in equity markets is a revelation or event that propels ...
The act of committing money or capital to an endeavor with the ...
A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
Consumer durables act as economic indicators because they signal how confident consumers are feeling about their own situations ... Read Full Answer >>
Although an investor should be familiar with many important economic indicators, the main indicators that are vital for the ... Read Full Answer >>
The data for gross domestic product, or GDP, is compiled by statistical governmental agencies in each country and is aggregated ... Read Full Answer >>
You need to have the zero-coupon yield curve information to calculate forward rates, even in Microsoft Excel. Once the spot ... Read Full Answer >>
The banking sector is a hinge for nearly all economic activity. For that reason, there's hardly an economic indicator that ... Read Full Answer >>
The most important economic indicators to monitor when investing in the electronics sector are global gross domestic product ... Read Full Answer >>
Systematic risks provide markets with an unpleasant quandary. Economists, policy makers, directors, fund managers and investors ... Read Full Answer >>
The main factor that drives share prices in the automotive sector is the expected future cash flows of the companies that ... Read Full Answer >>
In many respects, economics is more similar to social sciences such as psychology and sociology than hard sciences such as ... Read Full Answer >>
Investors, analysts and chartists rely on different kinds of indicators to provide a sense of order and understanding to ... Read Full Answer >>
Bear market rallies are difficult to define and difficult to identify. Several different methods exist to identify a bear ... Read Full Answer >>
Economic indicators are used by traders and investors in an attempt to understand the underlying fundamentals of the market. ... Read Full Answer >>
You May Also Like