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Performance Trends May Indicate Risk-Adjusted Equity Fund Flows: KBW Report

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Can the comparison of three-year risk-adjusted equity fund returns year over year predict fund flow trends? Such is the hope of Keefe, Bruyette & Woods (KBW), in its latest quarterly equity fund performance report titled “Equity Performance Bubbles: A Look at Risk-Adjusted Returns,” released Tuesday.

The report, which compares the above-mentioned returns as of August 31 with those calculated one year ago, evaluates the risk and return and how they relate to fund inflows or outflows. Results indicate strong returns for a number of funds, including T. Rowe Price, Eaton Vance, and Waddell & Reed; Calamos shows the most improvement, while many of Alliance Bernstein’s funds’ relative positioning continues weak.

Using the Simfund database of Strategic Insight, scattergraph diagrams were calculated for “a wide variety of asset managers,” according to the report. Those diagrams plot “the three-year risk-return profile of individual equity funds managed by a particular asset manager relative to other funds in the same Morningstar category.”

While “attractive risk-adjusted returns do not guarantee that a fund will generate positive flows,” the report goes on to say that “the funds in our sample universe that fell into the upper-left quadrant (lower risk, higher return) have tended to generate net inflows.” The report also tracks how risk-adjusted returns evolve over time, with an eye toward understanding future flow trends. Observations revealed that, “over the course of a year, there was noticeable change in the relative positioning of many of the equity funds measured in our analysis.”

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