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Follow where the money’s not going

Thames River Multi-Capital says the IMA sectors where investors are not putting their money are often better indicators of positive future performance than areas that are popular among investors.

The multi-manager team looked at flows into all 33 IMA sectors in 2009 and followed this with an analysis of their subsequent performance in 2010. It found that the best-selling funds in 2009 were sterling corporate bond, UK domiciled absolute return and sterling strategic bond funds. The worst-selling funds that year were in the IMA Europe excluding the UK, Japan and UK equity and bond income sectors.

Subsequent analysis of the sectors for 2010 showed that the nearer the top in performance terms, the more unpopular the sector was in attracting money the previous year.

Thames River Multi-Capital co-head Gary Potter says: “Looking at where the money has gone the previous year is not generally a good indicator of where future performance is going to come from because it tends to go in to a sector after the event.

“It is similar to if you drive a car while looking only in the rear-view mirror – you are going to crash. Where the money is not going is often a better indicator of where performance might be coming from in the future.”

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