Why Asset Managers Need to “Know the Flows”

Are you considering a commitment of resources to growing one of your mutual funds? Are you thinking about adding a fund to your lineup? One question you might not have considered: Is your timing right?

The decision to commit to launching or growing a fund isn’t just about getting it into the market or trying to add visibility. It’s about knowing if there’s a likelihood of demand for it. While your gut feel, focus groups, surveys and client demand may provide some validation, you also need to look at the bigger picture of where investor assets are going, so you can see whether you’re “in the flow,” or fighting against the current.

Of course, past fund flows are not indicative of future fund flows – but it certainly helps.

Is Active Still in Favor?

On paper, your fund should be a winner. But should you be concerned that, according to Morningstar, from 2014 to 2016 actively managed equity funds experienced more than $528 billion in outflows, while passively managed funds had inflows of $458 billion?

Is Your “Style” in Sync with Investor Sentiment?

According to First Trust Advisors, value mutual funds and ETFs have had net positive inflows, and growth mutual funds and ETFs have had net negative inflows, in spite of the fact that growth funds have better long-term performance.

Of course, it might help to know that, according to Morningstar, the lion’s share of the equity fund outflows during this period came from large mutual funds with subpar performance and high expenses. Your fund might not have a track record yet, but its management fees are reasonable enough to overcome potential entry barriers. Right?

Where Are “Active” Inflows Going?

Of course, plenty of actively managed funds are still experiencing inflows, otherwise the whole industry would be in trouble. It’s important to know which kinds of funds are in favor, and whether demand reflects performance. In addition to “style flow” trends, you should also consider inflows related to:

  • Market caps. Are large cap funds experiencing positive inflows right now? How do these inflows compare to those for mid caps and small caps?
  • Institutional versus retail investors. Are the majority of inflows for large cap growth funds coming from the primary audience you’re targeting? Do you offer the right share classes for your audience?
  • Does your fund favor certain industry sectors that are experiencing positive inflows?
  • Global markets. If your fund invests internationally, do inflows into funds that invest in these countries demonstrate investor confidence?

Resources to Identify Inflow/Outflow Trends

While some research firms publish high-level overviews of asset flow trends, you’ll need to pay for detailed data. Morningstar Direct and Strategic Insight offers you the ability to understand market trends and fund flows for mutual funds and ETF’s to help you make better decisions. You can slice and dice the market and the competition any way you want.

For example, you can simply learn which types of mutual funds are getting the majority of the flows. You can also compare your fund flows to the market leaders or to an entire category over periods of time and across different distribution channels.

Ask Your Distributor

Your fund distributor should have access to fund flow data. Some firms are more helpful than others.  One may be able to provide aggregated data related to your fund’s investment category while another may subscribe to Morningstar Direct or Strategic Insight and be willing to share customized research with you or offer discounted subscriptions.

Go Cheap

If paying for research isn’t your thing, you can still get basic data for free through a couple of resources. Brightscope offers you the ability to review fund flow information one fund family or mutual fund at a time. Morningstar offers a monthly recap of the industry with analysis from their experts and you can request an email reminder when the report is updated. Active equities, international equities and fixed income strategies have seen inflows in recent months according to Morningstar’s June report.

The obvious limitations include the inability to do more than the most basic queries and reviewing monthly reports without any customization.

Know the Flows

The more you know about where investor money is going—and where it’s coming from– the better you’ll be able to gauge the opportunities you’ll have—or the challenges you’ll face—as you grow or roll out your fund in today’s highly competitive marketplace.


For more information on growing your asset management business, please contact Dan Sondhelm, CEO of Sondhelm Partners, at 703-597-3863.