I've been toying for a while with a story on Morningstar's venerable "buy the unloved" strategy. It starts with the simple premise that most people, quite reliably, do exactly the opposite of what's in their best interest. In its first manifestation, the strategy was to buy the three sectors that saw the greatest outflows (measured by change in percentage of assets at year's end) and hold them for 3-5 years while selling the most popular sectors. I liked it, then Morningstar stopped publishing it. When they resumed, the strategy had a far more conservative take: buy the three sectors that saw the greatest outflows
measured in total dollar volume and hold them, while selling the most popular sectors.
Oh, by the way, they haven't traditionally allowed bond funds to play. They track bond flows but, in a private exchange, Mr. Kinnel allowed that "Generally they are too dull to provide much of a signal."
The problem with, and perhaps strength of, the newer version is that it means that you'll mostly be limited to play with your core sectors rather than volatile smaller ones. By way of example, large cap blend holds about $1.6 trillion - a 1% outflow there ($16 billion) would be an amount greater than the total assets in any of the 50 smallest fund categories. Large cap growth at $1.2 trillion is close behind.
Morningstar has taken, very quietly, to publishing fund flow reports each month. Here's
the August report, for what interest it holds.
Who's unloved? Over the past 12 months:
intermediate term bonds - down $57 billion but up $7 billion YTD
large cap growth - down $35B
intermediate government - down $23B over the past 12 months
TIPs - down $22B
National munis - down $13B
commodities - down $11B
EM bonds - down $8B
Who's
really unloved? Though Morningstar doesn't do the calculations, it appears that some of the emerging markets (China and India in particular) and currency funds have seen 10-25% of their assets disappear over the past year.
There's a lot of poke through. Hope you enjoy.
David
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David