Fund Flow

Fund flow is the net of all cash inflows and outflows in and out of various financial assets. Fund flow is usually measured on a monthly or quarterly basis; the performance of an asset or fund is not taken into account, only share redemptions, or outflows, and share purchases, or inflows. Net inflows create excess cash for managers to invest, which theoretically creates demand for securities such as stocks and bonds.

Investors and market analysts watch fund flows to gauge investor sentiment within specific asset classes, sectors or the market as a whole. For instance, if net fund flows for bond funds during a given month are negative by a large amount, this signals broad-based pessimism over the fixed-income markets.

A fund flow focuses on the movement of cash only, reflecting the net movement after examining inflows and outflows of monetary funds. These movements can include payments to investors or payments made to the company in exchange for goods and services.

The fund flow does not include any funds due to be paid but have not yet been paid. This includes arrangements where a debtor is scheduled to pay a certain amount per a completed contract, but the payment has not been received and the obligations on the part of the company have not been settled.

A fund flow statement is a disclosure of the types of inflows and outflows the company has experienced. It is a forum in which to provide information regarding any fund flow activity that might be out of the ordinary, such as a higher-than-expected outflow due to an irregular expense. Further, it often categorizes the various transaction types and sources to help track any activity changes.

If the fund flow changes, it often reflects a change in customer sentiment. This can be related to new product releases or improvements, recent news regarding the company or shifts in feelings on the industry as a whole. Positive fund flow changes note an upswing in inflow, a lessening of outflow or a combination of the two. In contrast, negative fund flow suggests lower inflows, higher outflows or both.

While occasional shifts may not be indicative of issues within the company, prolonged negative fund flows can be a sign there are some issues present, as this is a reflection of income not being sufficient to meet the company’s expenses. If this trend continues, it could mean the company needs to acquire a form of debt to continue operations.

A roaring bull market attracted investors from the sidelines into the fray in the early part of 2018, as was evidenced by the direction of fund flows. Investors poured $58 billion into mutual funds and exchange-traded funds (ETFs) in the four weeks ended Jan. 17, the fastest pace of all time. Passively managed equity ETFs recorded $38.2 billion in outflows for the first several weeks of January, while a net four-year peak of $5.6 billion flowed into mutual funds, suggesting a return of positive sentiment toward active management after years of outflows as managers underperformed the market but expected higher fees than passive management.