How Fund Flows Affect Performance

Fund inflows can force a manager to hold too much cash while persistent heavy outflows can make a fund manager sell holdings he otherwise would let run

Dan Culloton 18 August, 2015 | 2:26PM
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Ask a fund manager in public or on the record if inflows or outflows are affecting his ability to effectively execute his process and the answer is almost always no.

Heavy inflows and outflows are not definitive sell signals

Privately, however, many fund managers often admit cash flows can be a pain, particularly at the extremes. A gush of inflows can force you to hold too much cash or compromise your security-selection standards to put money to work; persistent heavy outflows can make a manager sell holdings he otherwise would hold and can wear on investment-team morale.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Dan Culloton  Dan Culloton is an associate director of fund analysis for Morningstar and editor of Morningstar's Vanguard Fund Family Report, a monthly newsletter that offers independent, no-holds-barred guidance on the pros and cons of this dominant fund family. Click here for a free issue of the Vanguard Fund Family Report.