US Long Term Mutual Fund Flow

24 November 2012

Introduction

The Investment Company Institution (ICI) is the national association of US. investment companies. It  tracks many business activities including those of mutual funds. Its members manage total assets of about $13.8 trillion all over the World and serve more than 90 million shareholders. It publishes Long Term Mutual Fund flow weekly. Its publications can be found here.

What’s the Use?

The data published by ICI on the money flow of the Mutual Fund (the Fund) has been used often by many to track the general market directions. A plot of the data is shown below:-

Chart Analysis

The chart shows the Fund’s money flow against S&P. It can be seen that the Fund are quite sensitive to the changes in the stock market. The fund curve exceeded stock market curve in 2007. As the market started its downward trending, the Fund discharged its holding sharply until mid 2008 where they dumped as much as they can. At one stage, the Fund dumped more than USD$180 billions per month in total. When market started picking up in March 2009, the Fund loaded heavily. Today, they are keeping bonds at reduced level but started selling equities averaging around $15 billions per month

What Can We Learn?

One can use the Fund’s money flow to chart market direction. Be the first to load when one sees the Fund are loading heavily and vice versa.  Note that this mutual fund money flow indicator tracks better than the Junk Bond ETFs indicator described here before.