Todd Willits is the CEO of EPFR, an international financial data company dedicated to tracking asset flow and allocation data for investment vehicles worldwide. Willits has a unique perspective in the industry, tying together client conversations and product direction while overseeing the company’s data, engineering, and quantitative research teams.
Russ Alan Prince: Tell us about EPFR. Why do your solutions matter and how do they help people navigate the market?
Todd Willits: EPFR provides two unique views into global financial sentiment. The first is investor sentiment; we track how investors are essentially voting with their dollars. For example, if investors think the energy markets that they track will go up, they’ll put more money into oil funds or sustainable energy funds. Likewise, they will allocate their money appropriately if they think that a specific country, sector, or industry is going to go down. In either scenario, our products track where these assets are flowing.
The second type of sentiment we track is fund manager sentiment, which provides a window into what fund managers are thinking regarding the global economy. One example is global emerging market funds and the broad range of investments seen there. How fund managers change their allocations to various countries or regions is very telling from the perspective of them aiming to maximize their return for their own investors. Fund manager sentiment provides a forward-looking view of how global fund managers are feeling about the global macroeconomic environment.
Our solutions are resources for investors to make intelligent decisions, but they are especially important now considering the ongoing economic tumult that has been unfolding. In addition to tracking products like money market funds, which have been hugely popular recently in the wake of the global financial shocks we have seen, we can also determine which asset classes are enjoying stability and security. As of late, that has included telecoms, silver and gold offerings.
Prince: What is so unique about the data EPFR offers?
Willits: It’s unique because we’re dedicated, above all else, to answering questions on where money is moving and why. Looking again at global emerging markets as an example, where the money is coming from and where it’s going says a lot about what investors and fund managers are thinking. In turn, this allows EPFR users to allocate their own assets accordingly. If more emerging market funds domiciled in the U.S. are seeing inflows, that broadly means U.S. investor sentiment is inclined toward emerging or frontier markets and investors are willing to take on a little more risk in exchange for more return.
Another example is a situation where the data could show inflows into European money market funds. This would signal that investors are concerned with current risk profiles and are looking for safe measures to protect their assets. The granularity of our data offers invaluable context that’s difficult to find elsewhere. Because of its comprehensive nature, we are able to provide strong insight into investable ideas and the thought processes global fund managers and investors are using to make intelligent decisions.
Prince: What insights have EPFR’s data provided amid the recent market turmoil?
Willits: There has been a strong flight to safety recently. The record inflows into money market funds indicate that investors are waiting for entry points into any sort of financial product that can yield returns. But until they see that, many are likely going to be sitting on the sidelines waiting for some of this turmoil to pass.
Alternatively, there have been signals that ESG funds and investing sustainably are here to stay. Even amid increasing prices in oil markets, people aren’t necessarily running back to that sector as quickly as one might expect. Our data suggests the considerable sums of money that have gone into ESG funds over the last several years are starting to stick and the sector is becoming structural. In other words, it’s not just being driven by investors who would otherwise chase returns through fossil fuels.
Another trend we have identified, and one that speaks to the value of our data, is a movement among the holdings level for mutual funds and ETFs. Patterns have emerged to signify who is holding what. For example, with the chatter of a possible crisis unfolding in the weeks leading up to the run on Silicon Valley Bank, we saw a lot of exposure in that area being decreased. That sort of intelligence is not something you would be able to get just by looking at headlines. We are under the hood examining where manager sentiments are changing and where people might be heading toward the exits in a crowded room.
Prince: What are the biggest trends you expect to see for global investors through the remainder of 2023 and into 2024?
Willits: I don’t think investors will lose focus on the Fed. This expectation has been changing over the past few months, but there does appear to be a trend that investors are banking on a pause for interest rates through year’s end. Depending on how their decision plays out, that assumption could be a big gamble.
We are monitoring flows into and out of inflation-protected asset class products to determine whether inflation seems to be leveling off or not. As expectations of interest rates flattening play out, we will also examine inflows into bank loan products to see whether investors are buying that narrative or not. We may not be able to anticipate the next crisis around the corner, but our data, with all its inclusive and varied facets, allows us the ability to get a pulse on what investor sentiment is as crises play out in real-time.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.