Everything You Think You Know About Fund Flows is Wrong
Backward-looking Category-based Analysis Will Lead You Astray
The study of fund flows informs nearly all product decisions at asset management firms. The prevailing method of understanding flows is to aggregate historical flows by category. We show that this method is deeply flawed because it does not properly account for other flow drivers that are highly correlated with fund categories. Moreover, it does not properly relate past flows to future flows, potentially leading to disastrous conclusions.