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Is The US Outflow Narrative Overdone?
They were still selling US equities over the last week. And they were still buying European shares.
Are any of my more enlightened co-subscribers here willing to explain what the professionals mean by ‘inflows’ and ‘outflows’ in this context? Given every equity purchase is matched by a sale there is no net flow in or out of equities at the transaction level. Are they referring to aggregate changes in market capitalization perhaps or metrics that relate to the creation of open end funds (which would also presumably still be neutral on flow once the underlying shares had been purchased).
For me you are correct but saying what you just said in an interview cost me a nice job.
Not a technician but as I understand, “money flow” is positive if the security is transacted when price is rising, negative if transacted when price is falling, and you can measure rising/falling tick by tick or on the day. Idea being that positive implies buyers more motivated than sellers, negative sellers more motivated than buyers. Or something like that – pretty loose concept I think.
Thanks both 🙂
Since this piece refers to funds and ETFs, aum?
The terms “inflow” and “outflow” only make sense in the context of equity funds (e.g. ETFs and mutual funds) and not in the case of individual stocks. If all investors just bought stocks directly, flows plotted above would be just zeros and we would need to look at money flows into stock exchanges to estimate flows of money into/out of equities in Europe and the USA.
In funds, when a new investor buys in and the fund can’t match the buyer with a seller, the fund will go fetch stocks and hold them on behalf of the buyer. This transaction counts as an inflow. The inverse is an outflow.
The inflow calculation is independent of the assets under management and the movement of the price of the fund. Here you can find the daily flows for SPY: https://www.etf.com/SPY
As a less than enlightened co-subscriber, I venture to answer – the flows (or out of) are into etfs and funds who then deploy the cash into purchases according to their mandates. So you don’t see a buyer/seller type exchange of stocks/bonds as in the open market for retail investors. Instead the cash goes to purchases/sales of assets and the law of supply and demand affects the price of those assets driving the price up or down.