Flow Cycle Reversed?
Have bond flows peaked? The prospect of declining flows into fixed income, driven by rising interest rates and weak bond returns, may likely shift money into U.S. equities. This has important implications for investors.

  • U.S. equity and fixed income flows generally move in opposite directions. In fact, the correlation during the past two decades was -81%.

  • Typically, returns lead flows—investors react to market results—which may mean that the double digit outperformance of stocks relative to bonds during the past two years may lead investors to change their investing habits. As a result, we may experience increasing flows into U.S. equities and a reduced amount of money invested in fixed income funds.

  • During October investors took out $36 billion from bonds, the largest monthly net redemption in nearly three years.

  • Usually, significant positive U.S. equity fund flows precede a stock market peak and current investing behavior suggests we are far from such levels, as indicated by the chart above. U.S. equity returns may have another catalyst to increase.

The views expressed are the views of Fred Alger Management, Inc. as of November 2018. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares. 

Risk Disclosure: 
Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies' securities have historically been more volatile than other securities, especially over the short term. Technology companies may also face increased competition, government regulation, and risk of obsolescence due to progress in technological developments. 

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