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Know the flows

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EPFR Global overview

EPFR Global overview

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  • 1. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALKnow the Flows…
  • 2. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALCompany OverviewEPFR Global delivers a complete and transparent picture of institutional and individualinvestor flows and behavior. Managers who use EPFR fund flows are able to gainpredictive insights of market direction to boost returns and increase alpha. • Series sourced through direct relationships with fund managers and administrators • The universe covers over $15 trillion in globally domiciled funds. • EPFR flows are available at either the asset class aggregate, fund group, investment manager, individual fund and share class levels to support the most granular and informed insights. • Comprehensive, transparent, and robust daily, weekly, monthly updates available T+1 in addition to historical time series. 1
  • 3. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALUsers of EPFR Data Banking and Brokerage Government/Central Banks  Strategists  Regulators  Capital Markets  Monetary Authorities  Research Analysts Types of usage: Types of usage:  Proprietary trading  Cross-border flow analysis  Directional calls for clients  Flows impact on currency as well as  Targeting sales efforts local equity/debt markets  Market analysis Asset Managers Hedge Funds  Fund Managers  Global Macro/EM/Discretionary  Portfolio Analysts  Quantitative Investors  Marketing and Product Development Types of usage: Types of usage:  Factor in investment process  Momentum trading  Competitive analysis, product dev  Liquidity analysis  Asset allocation  Market timing  Quantitative analysis 2
  • 4. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALUses of EPFR Global Data Market Timing • Foreign investor flows can be 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 and is often used in multi-factor models Directional Signals • Country and sector flows can be leading indicators of broader market direction. Relative strength of flows to favored countries/sectors vs out of favor countries/sectors helps managers decide when to get in or out. Asset Allocation & Benchmarking • Allocators will cross-check their own analysis with investor sentiment based on flows/positioning • Portfolio managers can compare their allocations with their peers for performance analysis Measuring Risk • Monitoring flows into asset classes provide a useful signal of investor risk appetite. Similarly, fund manager positioning (for example cash positions) indicate changing fund manager risk appetite 3
  • 5. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALEPFR Global Key Data Sets Core Datasets Derived Datasets (based on data sourced directly from managers or administrators) (based on flows and allocations data) Fund Fund Country & Flows Allocations Sector Flows The amount of Fund manager Distribution of fund cash flowing allocations at flows by country or into and out of month-end across sector. Combines funds world- the countries or data from fund flows wide. sectors they invest and fund allocations. in. Equity/Bond Fund Flows  Country Weightings – Monthly  Country/Sector/Industry Flows Daily/Weekly/Monthly  Sector / Industry Weightings – Monthly Daily/Weekly/Monthly * also includes AUM, Performance  Regional packages available  Equity / Bond Fund Holdings – Monthly Daily/Weekly/Monthly 4
  • 6. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALFund Flows OverviewLeverage the transparency of the EPFR universe and the granular breakdown of flows Asset Class Breakdown Fund • Geographic investment focus Flows • Style/sector The amount of The amount • Bond categories cash flowing of cash into and out of flowing into funds out of and world- Investor Types Differentiation wide. world- funds wide. • Institutional vs Retail • US Domiciled vs Non-US Domiciled What are Fund Flows?  Calculates “Net Flows” (investor Fund Types Differentiation contributions/redemptions) for individual funds and then add these up by asset • Dedicated Country Funds vs Global, GEM, and Regional Mandates class • Mutual funds vs ETFs  Net Flow calculations exclude portfolio performance and currency fluctuations • Active vs Passive  Includes funds registered globally not just those domiciled in the US  Updated daily/weekly/monthly 5
  • 7. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALFund Flows: Asset class breakdownHighly granulated flow data for more than 100 country, regional, sector and asset class categories (includes Global & US ) 6
  • 8. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALFund Flows: Investor types differentiationUS equity fund flows since March ‘09 lows All investor types US institutional investors Non-US investors in US equity US Retail investors • Only US institutional investors were the main buyers ‘at the bottom’ • US Retail investors missed the big 09/10 US equity rally • Non-US investors (US equity funds domiciled ex US) stayed away in Q2/Q3 2010 7
  • 9. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALFund Flows: Fund types differentiationGlobal EM allocator funds (blue) vs dedicated Differentiating China mutual fund flows (red)China specialist country funds (red) from China ETFs (blue) • 2009 flows from allocators are flows • China ETF investors – aggressive from Global, GEM, AsiaExJ funds in/out trading, and sharp correction in allocating a percentage of the portfolio to December before the mutual fund China investors – why? • Specialist funds are mutual funds or • Detailed analysis shows sharp ETFs that invest 100% in China inflows/outflows to FXI (FTSE Xinhua A shares ETF – popular in/out trade for • Specialist flows usually enter first and hedge funds, leveraging the overall exit first investor demand for China 8
  • 10. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALFund Flows: Practitioner examples and investment signals Flows provide additional information useful in the asset allocation process, including: Global • Future performance of equities vs bonds (using 4 week flows to risky assets vs mm)cross-asset • Regional equity allocation allocation • Sector allocation within fixed income Comparing strength of flows across regions as a ‘liquidity pulse’ • The Liquidity Pulse compares the size of the current flow to a country or region (4-week Relative average flows as % of assets) with the average size of the flow in the last 13 weeks. value • The relative size of the flows is given as standard deviation from the mean. Most powerful on a cross-sectional (regional) basis. Excess flows are shown to cause predictable and investable inflection points. The rule is Equity based on 4 week total overall flows for GEM equity funds: Trading • Outflow total greater than or equal to - $8bn ‘buy’ signal Rule • Inflows greater than or equal to $6.5bn ‘sell’ signal 9
  • 11. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Example: Global risk indicator Best call: On May 6th 2010 – BofA backtesting indicates that GFSI would have flashed "sell.” Risk assets sold off over the next 30 days, as equities corrected 5.5%, commodities fell 8.1% and HY bonds lost 2.6% Chart 4 shows a backtested chart of the GFSI sell indicator and the performance of major asset classes. The GFSI would have warned of a major correction in risk assets on 6th May 2010. Source: BofA Merrill Lynch Global Research, EPFR Global, Bloomberg; indexed to 100 in Oct’09 10
  • 12. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Example: Global cross-asset allocationChart 10: End-of-month ‘best-of-two’ strategy for global equities vs global bonds based on the four-weekaverage fund flows as a percentage of AuM into risk assets and money market funds Chart 10 shows that the results of the monthly ‘best-of-two’ strategy for global equities and global bonds are similarly convincing. The strategy would have generated an excess return of roughly 8pp per year before costs, and total return was more than twice the benchmark return with lower volatility. The strategy therefore clearly dominates the equally-weighted benchmark. Using money market returns as risk-free rate, the strategy has had a Sharpe ratio of 1.3 since 2004, while the benchmark only had a Sharpe ratio of 0.2. On average, funds would have to be switched between global equities and global bonds three times per year; so even including transaction costs, a significant excess return would have been earned. These results clearly suggest that the direction of flows into or out of risk assets and into or out of money market funds contains information about future performance of equities versus bonds.Source: EPFR, Datastream, Commerzbank Corporates & Markets 11
  • 13. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBAL Practitioner Example: Credit research analysis US Credit Outlook Support from the deep The ‘hidden force’ supporting asset prices is, of course, the flood of liquidity from the Fed. In his most recent testimony and elsewhere, Bernanke has deemed the fact that “equity prices have risen significantly, volatility in the equity market has fallen, [and] corporate bond spreads have narrowed” as evidence “that the Federal Reserve’s recent actions have been effective.” By holding interest rates on cash at zero even as the economy has continued to recover, the Fed has left investors scrambling for return wherever they can find it. Much of the rally has been justified by the recovery in the economy, of course. Yet the fall in yields to their lowest levels since the 1960s, the simultaneous rally in gold and recent sell-off in the dollar, leave us thinking that this is about more than just fundamentals. In some ways the fund flows speak louder than the actual market movements: investors have been selling cash assets to buy almost anything else. In 2010, much of this liquidity was making its way into EM; now that investors are growing nervous about political stability, it has again been channeled into US and developed markets (Figure 5). Even IG at 3% starts to look interesting when cash deposits and money market funds are yielding virtually nothing.Source: Citi Investment Research and Analysis, EPFR 12
  • 14. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALCountry & Sector Allocations Overview Momentum Indicators • Using overall country weights against benchmark as a momentum signal Fund Allocations Fund manager Benchmarking allocations at month-end across the countries or • Comparing country/sector/cash positions with peer group sectors they invest in. Market Timing What are Fund Allocations?  Monthly data reported by managers or administrators (based on holdings, fund • Tracking the ‘smart money’ – how funds get in/out at the optimal time factsheets)  Fund level detail includes total fund assets, % weight in cash, % weight by country  Includes funds registered globally not just US 13
  • 15. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALCountry Allocations: Country rotation – GEM vs global fund managers • Brazil has the highest Global EM (GEM) • Global funds however had preferred equity allocations (as of March 1), followed China to Brazil by China. • Overall Global funds BRIC exposure has • India weights falling sharply since July. dropped sharply since Q3 2010 Russia is on the rise. • Globals have low % allocations but represent large asset pools – when are they coming back? 14
  • 16. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Example: Momentum factors & peer analysis A NY firm uses country allocations data in a 10 factor model – as a Sentiment/Momentum factor distinct from price momentum. • The difference between a country’s MSCI benchmark weight and the GEM manager weights via EPFR is a gauge of institutional investor sentiment • Pays most attention to outliers – the GEM funds largest overweights or underweights Momentum factors Peer analysis •“Emerging market mutual funds country “Emerging market mutual funds country •“I find the EPFR Global Country Weightings “I find the EPFR Global Country Weightings allocations appear to contain information on allocations appear to contain information on data to be an invaluable tool in helping me data to be an invaluable tool in helping me future equity returns beyond that contained in future equity returns beyond that contained in track my competitors regional and country track my competitors regional and country standard valuation and momentum indicators.” standard valuation and momentum indicators.” allocations on a monthly basis. The data is allocations on a monthly basis. The data is timely and very comprehensive.” timely and very comprehensive.” Analyst, Analyst, Global Asset Allocation Research Team Global Asset Allocation Research Team Portfolio Manager Portfolio Manager State Street Global Advisors State Street Global Advisors 15
  • 17. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALCountry & Sector Flows Overview Derived data based on Fund Flows and Fund Allocations Country or Fund Sector Flows Allocations Distribution of Fund managerfund Updated daily, weekly, monthly flows by country or allocations at sector. Combines month-end across data from fund the countries or flows and fund sectors they invest allocations in. Unique high frequency view of cross border portfolio flows – driving valuations in FX, Equity, Bonds. What are Country Flows/Sector Flows ?  EPFR multiplies the most recently available Fund group allocations (to a country or sector) x Flows into that Fund Measures relative strength of flows at a Sector or Country level Group - to estimate overall flows at a country or sector level.  Allows users to analyze flows by fund group, ETF vs MF, and by domicile  Includes funds registered globally not just those domiciled in the US  EPFR also tracks flows to dedicated Sector Funds, as an alternative measure of demand for individual sectors 16
  • 18. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Examples: Sector flows Long/short sector strategies – Relative value trades in Europe Testing weekly Testing Long flows vs a 4-week Time range Weekly flows by 4-week only vs Short only cumulative flow, 12/20/2006 to sector (in Europe) rebalancing vs Long-short and vs a 13-week 08/26/2009 as % of assets period strategies cumulative flow Results overview: Annualized Return Long only Short only Long-short Benchmark Buy 3 sell 1 Weekly Europe* -19.22% 14.42% 0.08% -10.97% Buy 1 sell 1 4-week Europe -10.84% 22.52% 8.02% -11.95% Buy 1 sell 1 8-week Europe -25.37% 30.41% -2.33% -12.74% *Buy 3 sectors sell 1 sector 17
  • 19. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Examples: Sector/Country Flows Country Rotation – Global Quantitative Strategy Key Findings Applications: • Active fund flows are not highly • Asset allocators use the data to take correlated with price momentum positions based on quarterly or monthly country-flow based recommendations • Active (vs passive) fund flows provide useful signals at the country • Fundamental managers use the data to level adjust country tilts in their portfolio, better hedge country risk 18
  • 20. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Examples: Interactive Country Allocation Model Back tests using EPFR Fund Allocations and Fund Flows as factors in an EM country allocation model yield benchmark-beating results Investment factors • Active Investor Spread uses EPFR country allocations data to measure active, speculative investor activity in emerging markets • Average Country Flow compares one country to the cross sectional average • Directional Flow Indicator measures the relative strength and direction of regional flows Model Features • Provides an interactive environment for portfolio managers to backtest strategies with EPFR Fund Flow data • Create custom country portfolios • Construct customized flow factors • Adjustable factor weightings and risk parameters allow for a high level of adaptability 19
  • 21. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALPractitioner Examples: Interactive Country Allocation Model Active Investor Spread Consistent Outperformance Models consistently outperform MSCI Emerging Market Benchmark, with annualized excess returns ranging from 3.8% to 6.4% over a 10 year sample Average Country Model Risk Adjusted Returns Flow Results Annualized information ratios are as high as 1.14 Low Turnover In most cases, annual turnover is less than 150% Directional Flow Indicator Implication Results suggest that following the activity of active investors vs. passive investors may prove useful in tactical allocation decisions 20
  • 22. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALNew research based on EPFR Global data Dec 2010 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 FTSE - EPFR EM Fund Flows Index • Launched December 2010 the index uses weekly country flows data to improve country allocation and outperform the FTSE EM index Global Financial Stress Index • This new (Q4 2010) BofA Merrill index measures global investor risk appetite analyzing daily flows to EM equity, High Yield bond, and Money Market funds Global Country Allocation model • Using weekly country flows, EPFR is developing a new country allocation model that will be launched in H2 2011. The model provides users with unique country-level flow factors that can be used in tactical investment decisions. 21
  • 23. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBAL Sample Clients"The flow data from EPFR hasproved to be a useful source ofadded value in some Sell Side Buy Side Government/Mediaquantitative models of equitymarkets we have constructed.It provides an extra dimensionof information to that availablefrom the typical equity marketdatabases used by quants andso affords an edge inperformance over much of thecompetition."Dr. Stephen ReesHead of Investment ProcessResearchSchroders, London“Emerging market mutualfunds country allocationsappear to contain informationon future equity returnsbeyond that contained instandard valuation andmomentum indicators.”AnalystGlobal Asset AllocationResearch TeamSalomon Smith Barney“I find the EPFR GlobalCountry Weightings Report tobe an invaluable tool in helpingme track my competitorsregional and countryallocations on a monthly basis.The Report is timely and verycomprehensive.“Brad AhamPortfolio ManagerState Street Global Advisors 22
  • 24. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBALCompany History 1994 • EPFR Global founded Cambridge, Massachusetts USA • EPFR Global launches Russia Portfolio, Central Europe Portfolio and Brazil Portfolio: publications serving more than1995-1999 600 institutional investor clients worldwide. • EPFR Global launches Research and Analysis Services, providing independent research services for investment 2000 management firms. 2001 • EPFR Global acquires Emerging Market Funds Research, Inc., a database of global equity and fixed income funds. • EPFR Global expands fund database by four-fold to more than 15,000 equity and fixed income funds with $10 trillion2001-2007 in assets. Client base expanded by nearly 10-fold and includes leading institutional investors, global equity and fixed income analysts, strategists, investment managers, hedge funds, central bankers. • EPFR Global launches new Web Interface, new Country Flows data set, and Web Services for automated data 2008 delivery in trading and investment models. • EPFR Global launches delivery with Haver Analytics to provide weekly and monthly international fund flows data for 2009 equities, bonds and money markets. 2010 • EPFR Global acquired by Informa PLC 23
  • 25. GLOBAL FUND FLOWS AND ALLOCATIONS DATA GLOBAL Key ContactsDwight Ingalsbe Managing Director/Co-Founder Tel: (+1-617) 864-4999 ext. 26 Email: ingalsbe@epfr.comBrad Durham Managing Director/Co-Founder Tel: (+1-617) 864-4999 ext. 24 Email: durham@epfr.comIan Wilson Managing Director, Fund Data Tel: (+1-804) 217-8653 Email: ian.wilson@epfr.comSimon Ringrose Managing Director, Sales Tel: (+1-617) 864-4999 ext. 30 Email: simon.ringrose@epfr.comCameron Brandt Director, Research Tel: (+1-617) 864-4999 ext. 22 Email: brandt@epfr.comPatrick Paradiso Sales (Latin America) Tel: (+1-917) 543-6181 Email: patrick.paradiso@epfr.comJean-Claude Moos Sales Executive Tel: (+1-212) 907-5814 Email: jcmoos@epfr.comRikolv Hatlehol-Desai Sales Director (EMEA) Tel: (+44) 7766 805657 Email: rikolv@epfr.comPui-Kam Ho Sales (Hong Kong) Tel: (+852) 3796 7116 Email: puikam.ho@epfr.comRobert Sheridan Business Development Manager, Asia Tel: (+65) 8484 1094 Email: robert.sheridan@epfr.comYoung-il Sunwoo Sales (Korea) Tel: (+821) 9608-0101 Email: yisunwoo@dreamwiz.comTodd Willits Manager, Client Services Tel: (+1-617) 864-4999 ext. 27 Email: todd@epfr.com 24