TrimTabs may have found some magic backtested secret sauce, but I’m not so convinced.

I read with some skepticism Olly’s interview and story on the TrimTabs research, suggesting that the easiest way to make money was just to fade the monthly ETF fund flows. When the rubes are buying SPY and EEM, short ‘em. When they’re headed for the exits, load up.

While I respect the folks at TrimTabs and don’t doubt the mathematical accuracy of their regression, I can’t help but point out a few things—like the general trend of the last decade in equity markets has been down. Also, assets have flown into ETFs, as the product structure and market position vs. mutual funds has solidified.

I’d argue that looking at ETF investors as a population is shaky ground to build a business on. We know from both anecdotal evidence and filings that ETF investors come in all shapes and sizes. Hedge funds and day traders certainly play a huge role in fueling daily volume and influencing asset flows. But my sense of the market is that it’s becoming more the province of long-term, buy-and-hold investors as the years go on and as funds flow out of mutual funds and into ETFs for keeps.

But I couldn’t help wonder—if their complex system of regressing flows over 44-day periods works, what would a simple look at individual funds tell us?

Luckily, the way data get reported on fund flows, we have an easy test. Every day at the close of the market, the shares outstanding for every ETF are updated. Any orders for new shares placed during the day are represented in that number. So how does that new money tend to fare on the very next day? It’s as easy as looking at the correlation between “new money in” and the closing price.

So let’s look at the big daddy, the S&P 500 SPDR (NYSEArca: SPY).

As you’d expect, some days are better than others, but it’s clear that in general, SPY investors suffer from the TrimTabs effect—more often than not, they start losing money the day after they take delivery on their new ETF shares.

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