Why the fund flow data should make you cautious | FT Alphaville

It’s a big theme: investors of all colours have reportedly been pouring money into equity funds of late. In fact, over the past week money has been flowing into stocks at the fastest rate since September 2007, according to EPFR.

Which should give all investors pause for thought.

Consider the following chart from Mark Diver at Nomura. Click to enlarge.

Yes, extreme moves like this are a contrarian indicator.

Nomura’s model is showing the most bullish sentiment since February last year – and Diver says that extreme levels on the indicator have tended to prove a useful signal for equity market returns on a 12-week forward view. But he adds that other indicators that he follows — such as the bank’s Composite Sentiment Indicator — are still carrying neutral readings. So the evidence is mixed.

Wise to tread carefully though…End