Fund flow shows the net cash flow that investors invest, or divest, from a fund. Fund flows can be analyzed in broader fund categories like asset class or market sector.
What is fund flow?
- Fund flows show the net cash flow of a fund. Investors can review fund flows to see a certain fund’s popularity.
- The more positive flows a fund has, the more cash it has available to manage.
- Fund flow information can also show trends in the market like revealing undervalued sectors.
Fund flows are created when a fund’s shares are purchased, and outflows are created when shares are redeemed. While fund flows are not directly impacted by a fund’s performance, gains, or losses, they provide valuable information about how investors use the fund. Fund flows also show how much cash fund managers gain or lose in a period. Positive net flows imply that the fund is receiving cash by issuing shares to interested investors. Negative net flows indicate that the funds are losing cash due to investors redeeming shares.
Fund flows can also be viewed in broader contexts like viewing all fund flows by asset class or market sector. These flows can determine trends in the market. For example, if equity funds were experiencing net inflows while bond funds had net outflows, it would mean that investors were divesting from bonds to invest their money into equities. This may imply that investors believe the economy is expanding as they are favoring riskier, but rewarding, investments. If bond fund flows were greater than equity fund flows, this may imply that the market thinks the economic outlook is uncertain as investors now favor less-volatile funds.
Fund flows can also help investors identify investment opportunities. For instance, if the tech sector has experienced net outflows, some contrarian investors may believe it’s the best time to invest in tech as they may rebound. Morningstar provides monthly fund flow data with commentary on trends from our market research analysts.