Using fund flows as a factor in the investment process

1 Global Country Allocation model Using weekly country flows, EPFR is developing a new country allocation model with unique country-level flow factors that can be used in tactical investment decisions, for example: Average Flow – measures 4 week individual country flow vs their peers; Relative Flow – measures short term deviations in flow for an individual country; Active Investor Spread- compares country allocation decisions of active vs passive managers; Directional Flow- compares latest 1 week and 4 week flow with long term moving averages. Useful short term confirmation signal designed for absolute return strategies. FTSE - EPFR EM Fund Flows Index The index uses weekly country flows data to improve country allocation and outperform the FTSE EM index Global Financial Stress Index This new BofA Merrill index measures global investor risk appetite analyzing daily flows to EM equity, High Yield bond, and Money Market funds New Oxford-MAN paper (Journal of Finance candidate) What is the impact of fund liquidations (outflows) to equity valuations in emerging markets where foreign funds have big positions – and how can investors can use this information in their investment decisions New Research …………………………….…

Timing entry/exit Foreign investor flows are a useful leading indicator – especially at the country level and particularly in Emerging Markets Investors use flows relative strength to help time entry/exit to individual countries Momentum indicators Country allocation data - global fund manager positioning provides additional data as a momentum signal Directional signals Sector flows - can be leading indicators of broader market direction. Relative strength of flows to favored sectors vs out of favor sectors helps managers decide when to get in or out. Asset Allocation Allocators will cross-check their own analysis with investor sentiment based on flows/positioning Measuring Risk appetite Flows to riskier asset classes provide a useful signal of investor risk appetite. Similarly fund manager positioning (for example cash positions) indicate changing fund manager risk appetite 2 Using Global Flows and Positioning to Improve the Investment Process ……………………………………………………………………………..……………………………………………………………………………………………………………………………………..…………………