Using fund flows as a factor in the investment process
New Research
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Global Country Allocation model
Using weekly country flows, EPFR is developing a new country allocation model with unique
country-level flow factors that can be used in tactical investment decisions, for example:
Average Flow – measures 4 week individual country flow vs their peers;
Relative Flow – measures short term deviations in flow for an individual country;
Active Investor Spread- compares country allocation decisions of active vs
passive managers;
Directional Flow- compares latest 1 week and 4 week flow with long term moving
averages. Useful short term confirmation signal designed for absolute return
strategies.
FTSE - EPFR EM Fund Flows Index
The index uses weekly country flows data to improve country allocation and outperform the FTSE EM
index
Global Financial Stress Index
This new BofA Merrill index measures global investor risk appetite analyzing daily flows to EM equity,
High Yield bond, and Money Market funds
New Oxford-MAN paper (Journal of Finance candidate)
What is the impact of fund liquidations (outflows) to equity valuations in emerging markets where foreign
funds have big positions – and how can investors can use this information in their investment decisions
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Using Global Flows and Positioning to Improve the Investment Process
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Timing entry/exit
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Foreign investor flows are a useful leading indicator – especially at the country level and particularly in
Emerging Markets
Investors use flows relative strength to help time entry/exit to individual countries
Momentum indicators
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Country allocation data - global fund manager positioning provides additional data as a momentum signal
Directional signals
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Sector flows - can be leading indicators of broader market direction. Relative strength of flows to favored
sectors vs out of favor sectors helps managers decide when to get in or out.
Asset Allocation
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Allocators will cross-check their own analysis with investor sentiment based on flows/positioning
Measuring Risk appetite
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Flows to riskier asset classes provide a useful signal of investor risk appetite. Similarly fund manager
positioning (for example cash positions) indicate changing fund manager risk appetite
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