Each month, the Investment Company Institute publishes its “Trends in Mutual Fund Investing” which is the only statistical release on fund flows based on actual industry data. 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 samples more than 8,000 mutual funds, closed-end funds, exchange-traded funds (ETFs) and unit investment trusts (UITs).
The Federal Reserve also issues money market figures in its Money Supply Report, and TrimTabs offers daily and weekly data to investors through its website.
Why Are Mutual Fund Flows important?
Mutual fund inflows and outflows can be a source of investor sentiment, but there is no documented correlation between these flows and either stock market activity or the demand for equities. Mutual funds account for about one-quarter of the stock ownership, the rest is via individuals and institutional investors such as state and local pension funds.
While mutual fund flows alone do not determine investor sentiment, they do represent the way many investors participate in the markets, especially through retirement plans. That said, strong flows into stock mutual funds do 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.
Strengths of Mutual Fund Flows:
- 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)
Weaknesses:
- 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
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