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Decoding Fund Outflows

A few weeks ago, I wrote a story for the magazine about the ways investors can use mutual fund flow data to gauge where the market is headed. Well, Tuesday’s stock market sell-off clearly sent mutual fund investors into a tizzy. (Thursday’s sell-off may send them packing for the hills.)

According to Trim Tabs, U.S. equity funds posted an estimated outflow of $5.5 billion on Tuesday, the second-highest outflow this year. “Times like these when the herd is scared, and there is nothing fundamentally wrong, offer excellent buying opportunities,” says Trim Tabs’ Investment Research chief executive officer Charles Biderman. In other words, BUY.

While you can blame the stalled loan market for the downdraft, the current pricing model has widened to something “appropriate,” Biderman says. He forecasts that the repricing of higher-risk leveraged buyout bonds will take another month or so to unwind. “By then the fear will have totally disappeared and stock markets should be soaring in relief that the sky didn’t fall and the economy continues strong growth,” he says.

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