Go with the flows?
21 October 2020
Long run fund flows influence the trends
Cumulative flows into equity funds by sector can help investors better understand market trends. Significant in- or out-flows usually influence a sector’s performance.
- Since 2016, we observe a significant flow towards IT and more importantly right after the COVID-19 crash of March 2020.
- Healthcare, which is more cyclical, saw a sharp increase from 2012 to 2016, then a decrease until COVID-19 pandemic revivified the industry.
Shorter term flows indicate sentiment
Short term flows are more reflexive of market sentiments. Looking at rolling data, helps identify change of speed in fund flows.
- The COVID-19 crisis outbreak brought accelerating inflows to the IT and Healthcare sectors, while financials suffered from outflows.
- Since the end of spring, flows tended to revert to neutral, but remained positive (albeit at a slower rate) for Healthcare & IT, and negative for financials.
But are the flows all that important?
While inflows are a tailwind and thus usually a source of outperformance, we observe that lately the Healthcare and IT sectors’ performances were not entirely driven by the flows. Are fundamentals back in the driving seat?
- A marked slowdown in inflows (notably for healthcare) has not led to any noticeable underperformance.
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