Global flow data shows investor caution

Jessica DonohueInstitutional investors have taken their feet off the gas, with the latest data from State Street Global Markets showing a “neutral” reading for cross-border flows and consensus views on global markets.

According to Jessica Donohue, senior managing director of State Street Global Markets, based in Boston, there is no evidence of a sustained withdrawal from international investing, but rather a slight pause.

State Street has three information services which, when combined, provide a unique picture of global investment trends and sentiment. They are: a regime map of actual fund flows, a consensus view of aggregate agreements for foreign exchange, and a comparison report of actual holdings.

Donohue said, following a client conference this month, that institutional investors generally took their feet off the gas from November last year until March this year. They started to reapply pressure, lightly, during April and then “stepped on it over the summer” (June-August).

“For the past month and a half, though, they’ve been in neutral, and staying that way in November,” she said.

One of the interesting things about the State Street information is that the aggregate numbers are very lowly correlated with other investment indicators.

“We’re not here to replace investment strategies with another,” she said. “What we offer is an uncorrelated signal” You would think it would be correlated with price momentum, but it’s not.”

The signal, which has a 10-year track record for the core flows component, has also been shown to provide persistence and some degree of predictability.

An unsurprising element is that there are various degrees of interaction between asset classes, such as correlations between specific cross-border flows and emerging markets prices, for instance.

“Statistically, the information does well,” Donohue said.

State Street’s latest work involves drilling down through investor styles to, hopefully, show what types of investors are behaving in what ways at any point in time.

“We’d like to know what are the momentum guys doing, what are the value guys doing and so on,’ Donohue said.