I am the publisher of Learn Bonds. We published an article today which included data about fund flow into us fixed income and international fixed income funds. My question is do you follow / use fund flow data. Do you use it as a sentiment indicator (overbought / oversold)? Is it a lagging indicator following price action or does it have predictive powers?
Here is the link to the article:
http://www.learnbonds.com/q2-in-review-a-tale-of-the-bipolar-bond-market/
Comments
lucid
Adjective
1.Expressed clearly; easy to understand: "a clear and lucid style".
2.Showing ability to think clearly, esp. in the intervals between periods of confusion or insanity.
For the above, lucid; I will use description #2 as related to some market activities; although the use of "bipolar" in the article can be appropriate, too.
You noted: "My question is do you follow / use fund flow data. Do you use it as a sentiment indicator (overbought / oversold)? Is it a lagging indicator following price action or does it have predictive powers?"
I observed fund flow data when it has had a posted link here at MFO, but I do not search for the newest data. It may be used as an historical indicator; but the data is already out of date by the time it is posted.
Our house does not have ready access to, nor the time; to volumes and related daily data for futures, options and such devices that may reflect a more realtime view of any trends.
However, with the wide use of etf's by many big money houses and at many times these houses holding and/or trading massive dollar value amounts of these funds; one may, in my opinion, have a more real time evaluation of fund flows in various sectors with the observation of especially the widely held and high volume etf's in whatever sector(s) one needs to monitor for benefit.
If nothing were to change for the month of July from current trends, relative to several bond etf's; I will anticipate that bond fund flows will be much more positive for July, bumping prices up again. The last week of June found the starting trend in place again. Yes, the bond selloff, in my opinion, was overdone for the time being. Traders on the right side of the line made some money getting out and perhaps they and others have moved back into the purchase side. I continue to believe that the Fed is not going to dump the bond buying boat at this point in time with the continued weakness in the U.S. economy.
Sadly, tipping points for any actions in one direction or another are likely entering the "more dangerous" phase; as the party has been in place for a long time and eventually the central banks are going to have to make some very serious decisions. There will be those who will like and profit from the future directions of the central banks; and a likely greater number of individual investors will not be so pleased, with their portfolios injured. Hopefully, any problems arising from the unwind of central bank policies, will not damage individual portfolios much; as any market actions that resemble 2008/2009 portfolio losses will remove a large portion of investors, old and young alike; from any desire to invest in at the casino again.
'Cousre, I may be totally incorrect.
Regards,
Catch
1) As Scott noted - flows are a good barometer of public sentiment. If the flows reflect greater confidence through increased risk-taking, they should be positive for the economy. Conversely, higher flows into bond funds and other defensive instruments may bode ill both for public sentiment and the economy. (However, not all bond funds are created equal. If you go back and chart the types of bond funds that have been popular since the recent financial crisis, you'll see that the heightened public interest began in the highest credit quality sectors and gradually transitioned into riskier and riskier types of bond funds as the economy progressed and sentiment improved.)
2) Flow data is probably quite useful (and profitable) for momentum investors - for obvious reasons.
3) Heavy flows out of a particular fund can harm the fund by hamstringing management's ability to take advantage of new investment opportunities and sometimes forcing them to sell into a declining market to meet redemptions - further exacerbating losses for the remaining (diluted) pool of shareholders. I doubt heavy outflows would ever be viewed favoably by management or investors. And yes - I have taken this aspect of outflows into consideration when selling funds in the past.