Understand Investment Flow

The Investors Centre term “investment flow” refers to cash flows into and out of different types of financial assets for specific periods of time. For example, a mutual fund can have a positive or negative flow depending on whether investors buy new shares or redeem existing ones. Similarly, an investment company may have an overall positive or negative investment flow based on whether it sells new funds to investors or withdraws money from existing ones. The concept is important because it emphasizes the movement of cash, rather than how well or poorly a particular asset performed.

Analyze Trading Volumes: What Market Activity Reveals

Cash flow from investing activities shows the cash inflows and outflows related to long-term investments in assets like land, buildings, equipment, and securities. It also includes the purchase and sale of long-term financial assets, such as other companies’ bonds and stock. For example, if a company invests in a building that will help it generate revenue over the long-term, this would be considered an investing cash outflow. Similarly, if the company sold some old machinery that it no longer needed, this would be considered a cash inflow.

Following fund flows can be a useful tool for investment managers and analysts as they research potential new investment opportunities. They can look at the flows of specific share classes, Morningstar categories, asset classes, and more to gain insights into investor sentiment and changing preferences. For example, if a passive mutual fund experiences persistent outflows, it might be time to rethink its strategy or shift its positioning.