Risk Levels and Investor Preferences

Fund flows are an important source of information to monitor since they reflect the general investor preference for a specific asset class given current and expected economic conditions, market risk and other factors. They may also highlight  non-sustainable market positioning. In the following we illustrate the relationship between risk and investor preference for  assets  by using the  ICI data  which tracks about 98% of  inflows and outflows in US mutual funds. The below chart dynamically plot what were the inflow/outflows in US mutual funds as a function of the VIX level.  When selecting  period of high volatility (such as 2008)  with the slider the negative relationship between risk and appetite for equities becomes obvious.