If you want to make money, watch what the professional fund managers are doing—and then do the opposite.
April 15, 2026
Original Paper
Smart Allocation? Net Flows as a Predictor of Performance in Brazilian Fund of Funds
SSRN · 6575410
The Takeaway
We assume that the experts who manage billions in 'funds of funds' have a secret edge. This study of Brazilian funds shows the opposite: when these professionals start pouring money into a fund, its future performance actually drops. Their 'buying behavior' is a contrarian signal; by the time the 'smart money' arrives, the opportunity is usually already priced in or gone. This suggests that professional expertise can be a 'herd' behavior that actually destroys value. For the average investor, it means the 'experts' are often the last ones to know the party is over.
From the abstract
Highlights• Brazil's monthly fund disclosure creates a unique laboratory for studying allocative skill• Professional fund inflows negatively predict subsequent risk-adjusted returns (Jensen's alpha)• Result robust to winsorization, fund fixed effects, and a Probit specification• Institutional peer flows act as a contrarian signal for future fund performance• Findings challenge the narrative that professional capital allocation is informationally superior