More fund flow data of interest

by Wayne Ferbert on May 10th, 2012

The ICI put out its long term mutual fund flows for the week ending May 2nd. As we all know, mutual funds are predominantly the domain of investment advisors. As such, I am not surprised to see the continuing rotation out of US equity and in to international equity and fixed income. Advisors look to be locking in the gains from the last 2 quarters. Of course, show me an advisor that tries to time the market and I will show you an advisor that has a lot of uncomfortable conversations with his clients.

But the move to fixed income still perplexes me. After all, the interest rate risk still seems so real. The improving economy could drive rates higher - bringing fixed income prices down. The trend in this data is not favorable either.  4 out of the last 5 weeks saw a drop in equity investment in long term mutual fund flows. And the flows to fixed income have been steady and growing.

Sometimes there is an expression: you can't fight the tape. I have to admit - the tape looks like it wants to go lower.

What does it mean: make sure you are hedged. If you have hedges expiring soon, think about rolling them up to new higher levels. Think about selling puts below the market as a way to leg in to a new position at a lower price than it trades today. 

But above all, make sure you are hedged across your entire portfolio.

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