What Are Fund Flows Telling Us?
For the week ended November 5, AMG data is reporting that equity funds–including
those that invest abroad–posted net cash outflows of $854 million.
Taxable bond funds reported small outflows totaling $ 392 million for the week
ended November. Aggregate inflows for this year however, total $78 billion,
which is dramatically more than the amounts reported during the same period in
1998 (+$44b), 1999 (+$20b) and 2000 (-$60b).
A sustained trend in outflows from bond funds into stock funds would signal
capitulation by the remaining bearish investors, which, in my view, would then
suggest that caution should be exercised by equity bulls. Until that time
however, there is still plenty of retail money on the sidelines to buy stocks.
The chart below illustrates periods of extreme shifts in mutual fund flows
relative to the Wilshire 5000 and has been a good contrarian market
indicator during periods of extreme inflows–outflows, such as in 2000 and last October.
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