The flows of pension funds and payday loans
Fund flows measure the amount of money that comes into or leaves the open-ended mutual funds during a given period. Coupon payments are not included. The flows of pension funds, hedge funds and insurance companies are not tracked in this number. Nevertheless, there is a high correlation between high-yield market total returns and mutual fund flows. The reason is that mutual funds account for a big part of secondary trading.
During a period of high market uncertainty and increasing negative event risks the correlation with equity markets tends to rise. Fund flows in the high-yield market are directly related to the developments in the equity market.
Fund Flows are a function of:
- Expected risk
- Interest rates
- Inflation
- Default rates
- Economic outlook
- Event risk