How To Track ETF Flows And Anticipate Market Direction

Updated: Jun 16, 2021

The more you learn and understand, the better your trading results. This mindset is at the root of Banting Court Capital Management Inc. and so this article will touch on the topic of ETF (Exchange Traded Fund) flows. The money that flows in and out of ETFs can be an indicator for the financial health of the consumer and thus the stock market.

Contrary to popular belief, fund flow data is accessible to everyone, not just the big financial institutions. Fund flow data can be accessed at the following website below:

ETF Flows Tool

The fund flows will show cash inflows and outflows across various ETFs, active and passive, on a weekly, monthly, or quarterly basis. Net inflows create excess cash for fund managers to invest, which tends to create demand for the underlying stocks and bonds in their sector of choice. Conversely, net outflows reduce excess cash for fund managers and tend to result in lower demand for stocks and bonds. The latter may even cause fund managers to sell holdings if the fund doesn't have enough cash on hand to satisfy redemptions.

Fund flow data allows market participants to determine where capital is being invested in terms of asset class or geography. In addition, net fund flows can provide insight into whether investors are bearish or bullish the stock market and/or commodities market.

Each individual accessing fund flow data may derive their own unique insights when it comes to determine overall market direction and sentiment. It is up to the individual to determine where capital should be allocated and/or whether capital should be allocated to the market at all. Fund flows have the potential to act as a leading, coincident, and lagging economic indicator. For this reason, it's good practice to use more diagnostic tools than just fund flow data when diagnosing the market environment.

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