This February saw a break to the longest streak of monthly equity mutual fund outflows since 2008. For the week ended March 16, 2016, the Investment Company Institute (ICI) reported that total estimated inflows to mutual funds were just over $6 billion. This is the fourth positive week in row after seven consecutive months of negative net flows.
After several years of smooth equity returns, volatility returned in the fall of 2015. However, equity mutual funds have seen net outflows of over $99 billion since April of 2015, which was the last month for positive net equity fund flows. Over that same time period, bond funds in general saw outflows of around $64 billion. In concert with this, ICI’s class of hybrid funds, which are not completely equity or fixed income, have also seen proportional flows. As of March 16, total money market funds assets were around $2.7 trillion.
This reflects an interesting, and sometimes unfortunate, relationship between mutual fund flows and trailing equity returns. Since 2014 on a monthly basis, higher trailing market returns (S&P 500 in this case) have been positively correlated with positive fund flows. However, as volatility and diminishing market returns began to come into play, fund flows in general, as well as equity funds specifically, saw increases in outflows. In short, we are realizing our losses.
Successful investing is about managing the tensions between investment objective, risk in the market and human nature. Our research focuses on how to manage this tension and seeks to determine the best combination of investment strategies for different markets, the optimal asset allocation, monitor relative performance, and use feedback to adapt to a constantly changing investment environment.
It’s time to re-think the strategic approach of portfolios. At Manifold Fund Advisors we take the view that asset classes and categories are not the only aspects of diversification that should be examined. In fact, the first aspect we look at in building a portfolio is the diversification of investment strategies. The key from our perspective is identifying which strategies and products work together and how they interact.
Asset allocation has tended to work over long periods of time and in markets that maintain an upward trend. However, we believe we can identify active managers who might be able to add value through security selection as a second tier to an overall portfolio. Our third level of strategic allocation is through tactical investment strategies that can be fully invested or fully out of the market. We know certain tactical strategies may periodically outperform or underperform other active and passive strategies, and vice versa.
In our quest for preparation over prediction, we look to provide optimal exposures of passive, active, and tactical strategies in order to be prepared for any market condition we may encounter.
* Total Fund Flows exclude Money Market Funds
The Investment Company Institute (ICI) is the national association of U.S. investment companies (mutual funds, exchange-traded funds, closed-end funds and unit investment trusts). ICI encourages adherence to high ethical standards, promotes public understanding of funds and investing, and advances the interests of investment funds and their shareholders, directors, and advisers.
The S&P 500 Index has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The Index does not incur fees or expenses and is not available for purchase.
Disclosures
The views expressed are those of the author as of the above date, are subject to change at any time and over time, and may differ from the views of the firm as a whole.
Past performance is no guarantee of future results. Investing involves risk. The investment strategies and products discussed are not appropriate for every investor. When investing in mutual funds, an investor should consider the investment objectives, risks, and charges and expenses of a fund carefully before investing. The prospectus contains this and other information about the fund. Individual investors should review with their advisors the terms and conditions and risks involved with specific products or services. Manifold Fund Advisors, LLC makes no guarantees on the completeness or accuracy of information provided herein.
The asset allocation, diversification and other strategies discussed in this article do not ensure a profit and cannot protect against losses in a declining market.
No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Manifold Fund Advisors, LLC.
BLG-GU-33016
Copyright © 2017 Manifold Fund Advisors, LLC
Information found on this site is directed to U.S. Investors.
Manifold Fund Advisors is an Investment Advisor and the advisor to the American Independence Funds Trust. Request Form ADV Part 2A for a complete description of Manifold Fund Advisors, management services, and other important information. Please be aware of the specific risks associated with any investment product and always read the prospectus before investing, As such, your investments may lose value or you may lose the principal investment.
An investor should consider the investment objectives, risks, and charges and expenses of a Fund carefully before investing. The prospectus contains this and other information about the Fund. A copy of the prospectus is available on the website at www.americanindependence.com or by calling Shareholder Services at 1-866-410–2006. The prospectus should be read carefully before investing.
All information contained herein is for informational purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, securities or advisory services. It is not our intention to state or imply in any manner that past results and profitability is an indication of future performance. All materials are compiled from sources believed to be reliable. However, accuracy cannot be guaranteed. Before making an investment decision, prospective investors should carefully read all material provided.