Sum it like hot

While we could use the seasonally adjusted series to eliminate some of the distortions, a 12-month rolling sum of net flows produces a high signal-to noise ratio and eliminates some of the artificial distinctions produced by flows at the end or beginning of months.

This measure produces a very distinct pattern. U.S. fund investors shifted their flows very heavily into U.S. markets during the 2001 - 2002 bear market and then abandoned it, never really to return. As the total return of the S&P 500 rose fairly steadily from 2003 onward, U.S. equity fund investors sent their dollars overseas. As noted earlier, flows did not follow performance.

Next, let’s compare this same rolling sum ratio to the dollar index. As the dollar rallied (particularly against the euro) in 2000-2002, U.S. equity investors eschewed the opportunity to swap the greenback for foreign shares. Once the dollar’s 2002- 2004 decline began, U.S. equity investors began buying increasingly expensive foreign shares.
Restated, the American equity mutual fund investor stayed away from a domestic rally and paid up for foreign stocks after the bear market ended in 2002. There’s really nothing good to say about this observed behavior.