Volatile redemptions from and investments in mutual funds are not just due to market returns but to an entirely different approach investors are taking to fund ownership, according to a new report from ReFlow.
Although the mutual fund industry experienced its first annual net outflows in 2008 for the first time in 20 years, flows started to become more volatile in 2006, ReFlow found through analysis.
“Flow volatility is an ongoing trend that may not reverse even as the market recovers and net flows generally turn positive,” said Paul Schaeffer, president of ReFlow. This counters the widely held belief that volatile asset flows are a temporary or cyclical phenomenon, Schaeffer added.
As flows become more volatile, it can hurt performance and increase costs, as redemptions force the hand of portfolio managers.
ReFlow’s whitepaper is available at: http://www.reflow.com/rethink/whitepaper.pdf.