What Are the Benefits of Following the Money Flow?
If you are currently using a “follow the leader” investment strategy then tracking the inflows and outflows of investment money is essential in executing your strategy successfully. The flow of money into stocks, mutual funds, short positions, and ETFs, is one indication of the expectation that those investments are on the path to higher gains. With today’s market focused on short-term returns, following the flow of money is a favorite tool among momentum traders, but often overlooked by the buy and hold investors. However, every investor can benefit by observing the flow of money which shows general markets trends and consensus on where to go for the highest or safest gains. For example, the flow of money into bonds in 2010 outpaced the flow of money into stocks – an indication of the increased conservativeness by investors after the collapse of Lehman Brothers and the toppling of the financial markets. Fixed income investors continue to enjoy a bull market in bonds.
Websites to Track the Money Flow
There are several websites that can help you track the money flow into stocks, mutual funds, money market accounts, ETFs, and short positions. Here are few that offer tracking information for on their website (many of which are free):
1. Money Flows into Mutual Funds, ETFs, and Money Markets
A visit to the website of the Investment Company Institute provides a wealth of information on tracking the flow of money. The site hosts a weekly report on assets in money market mutual funds and a monthly report on money flow trends in mutual funds to help investors make better decisions when considering reallocation. The statistical information covers what type of mutual funds (stock, hybrid, taxable bond, municipal bond, taxable money market and tax free money market funds) have been on the buy list of investors. The company also provides insights into investor profiles and publishes research reports valuable for projecting money rotations into asset classes, regions, sectors, and investment styles.
2. Short Positions
A short position is taken when an investor expects that the price of a stock will fall. However, if the price increases instead of decreases and there are lot of short sellers buying the stock to cover their positions, then the price of stock may skyrocket – a situation known as a short squeeze. ShortSqueeze.com provides key information for understanding the flow of money in and out of short positions, including the percentage changes reported every two weeks. The website also offers for free its proprietary Short Squeeze Ranking™.
3. Buying into Weakness and Selling on Strength
The Wall Street Journal publishes a daily list of stocks that are experiencing downward price action, but have a contrarian inflow of money (buying on weakness). The figures include total money inflow, block trades, and an up/down ratio, which are updated hourly between 10:00 a.m. and 4:00 p.m. Money flows are calculated as the dollar value of composite uptick trades minus the dollar value of downtick trades and the up/down ratio reflects the value of uptick trades relative to the value of downtick trades. The website also furnishes a snapshot of the inverse situation in which stocks are experiencing upward mobility, but have the largest outflow of money (selling on strength).
4. Foreign Money Flows
Treasury International Capital (TIC) data is published by the Treasury Department and depicts the capital flows into and out of the United States, excluding direct investment. The data is closely followed by the bond market because it indicates the level of foreign participation and demand for the United States debt and assets. This data has garnered recent attention because of the United States rising debt level and need for strong inflows (demand for U.S. securities) to keep interest rates in check during the economic recovery. Investments tracked by the TIC data include Treasury securities, agency securities, corporate bonds, and corporate equities.
5. Mutual Fund Holdings
Mutual Fund Facts About Individual Stocks (MFFAIS) is a website which tracks mutual fund holding changes in common stocks as reported from SEC filings. The site provides several ways to filter the information, including by company, mutual fund, and latest activity. MFFAIS also includes a ranking system so that investors can see where the largest flows of money have settled by pulling up views of the top 10 share increases and the 10 most dumped stocks. In July 2010, the website went commercial and currently has a $9.99 per month membership fee.
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