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Fund Spy

How Flows Affect Your Fund

Extreme inflows or outflows can influence your fund's ability to survive and outperform.

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A version of this article was published in the August 2015 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.

Ask a mutual fund manager in public or on the record if inflows or outflows are affecting his ability to effectively execute his process and the answer is almost always no. Privately, however, many fund managers often admit cash flows can be a pain, particularly at the extremes. A gush of inflows can force you to hold too much cash or compromise your security-selection standards to put money to work; persistent heavy outflows can make a manager sell holdings he otherwise would hold and can wear on investment-team morale.

Dan Culloton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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