Page 53 - FINAL CFA I SLIDES JUNE 2019 DAY 4
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Session Unit 3:
13. Technical Analysis
Non-Price-Based Indicators (funds flows), p.325
The mutual fund cash ratio, MFCR, is the ratio of mutual funds’ cash position to total assets.
During uptrends, fund managers want to invest cash quickly (MFCR decreases) because
cash earns only the risk-free rate of return and thus decreases fund returns.
During downtrends, fund cash balances increase overall fund returns (so, MFCPR increases).
Contrarian indicator?
A high MFCR suggests market prices are likely to increase (prices low, getting higher –future buying power);
A low MFCR suggests mutual funds are already invested and prices reflect their purchases.
New equity issuance (IPOs) and secondary offerings add to the supply of stocks: issuers
tend to sell new shares when stock prices are high, increases in issuance of new shares may
often coincide with market peaks.
