Financial Sector Fund redemptions hit a three year high as default risk for Greece soars
EPFR Global-tracked Japan Equity Funds and Germany Equity Funds both attracted over USD750 million during the week ending 16 May, Healthcare/Biotechnology Sector Funds posted their biggest inflow since late October and US Bond Funds absorbed over USD4 billion for the fifth week in a row. US Equity Funds unexpectedly saw fresh money from retail investors for the first time since early July 2011.
For the second week running Emerging Markets Equity Funds were hit by the latest spike in risk aversion, with outflows hitting a fresh year-to-date high. But Financial Sector Funds also found themselves under fire as the risks of a disorderly Greek default mounted. Redemptions from this fund group hit levels last seen in early 4Q08.
Overall, EPFR Global-tracked Equity Funds posted outflows of USD5.12 billion while Bond Funds took in a net USD6.64 billion. Money Market Funds saw USD6.57 billion pulled out with European Money Market Funds seeing a five week inflow streak come to an end.
For the second week running outflows from Emerging Market Equity Funds set a YTD high, this week at USD2.26 billion, as retail investors extended a redemption streak that began in late February. The political deadlock in Greece and fears that China’s economy is stumbling towards a hard landing are sapping investors’ enthusiasm as they pencil in weaker commodity prices and a tougher environment for emerging markets exporters, The YTD performance gains for this fund group has dwindled from 16.7% at the beginning of March to 3.1% going into the third week of May.
EMEA Equity Funds saw the biggest redemptions when measured as a percentage of assets under management, a reflection of the dependence of key markets within this group on trade with Developed Europe. Outflows from Emerging Europe Equity Funds hit a 17 week high and Russia Equity Funds extended their longest outflow streak since 4Q11, pulling YTD flows for the overall fund group into negative territory for the first time since early February.
Investors looking for Emerging Asian exposure continued to bypass fund groups dedicated to the bigger regional markets in favour of smaller countries such as Thailand and Vietnam. While China, Korea and India Equity Funds extended outflow streaks ranging from three to 10 weeks, Vietnam Equity Funds maintained their record of taking in fresh money every week YTD and Thailand Equity Funds posted inflows for the 19th time in the past 20 weeks. Taiwan Equity Funds also recorded their biggest inflow in 10 months as the strengthening of the US dollar boosted the outlook for exporters.
Latin America Equity Funds saw YTD outflows push past the USD1.5 billion mark as China’s mixed economic data and Europe’s struggle dented the outlook for key commodity exports. Brazil’s efforts to boost growth by way of cheaper credit, rather than by structural reforms, are also getting harsher scrutiny from investors.
US, Global, Europe, Japan and Pacific Equity Fund Flows
The prospect of a stand-off between Germany and opponents of austerity that prevents a coordinated response to the latest chapter in the Eurozone debt crisis kept Developed Markets investors on edge during the week ending May 16. They responded by steering money into funds dedicated to Germany, Japan and, to a lesser extent, Canada, at the expense of US and Europe Regional Equity Funds.
Once again Europe Equity Funds managed to post inflows despite the uncertainty swirling around Greece’s willingness to defy those funding its current bailout package as institutional investors’ commitments to German Equity ETFs offset redemptions from regional fund groups. "There seems to be a small but significant core of investors who believe that Greece’s latest convulsion will force policymakers and the European Central Bank to abandon their reactive, incremental approach and come up with a sweeping plan for containing the crisis," observed EPFR Global research Director Cameron Brandt.
On the other side of the Atlantic US Equity Funds received fresh money from retail investors for the first time in over 10 months. Their commitments were not enough to offset a second straight week of institutional redemptions that pushed YTD outflows over the USD10 billion mark. During the comparable period last year these funds took in a net USD39.1 billion.
Japan Equity Funds, meanwhile, enjoyed their best week since mid-3Q11 as strong institutional commitments pushed cumulative flows into positive territory for the first time this year. Recent data suggests that pent up consumer demand and reconstruction spending have boosted growth in the world’s third largest economy.
Pacific Equity Funds posted inflows for the fourth time in five weeks but the other major diversified fund group, Global Equity Funds, saw a four week inflow streak come to an end.
Flows into EPFR Global-tracked Sector Funds continued to swing towards those with defensive reputations during the week ending May 16, with Consumer Goods, Healthcare/Biotechnology, Real Estate and Utilities Sector Funds all posting solid inflows while Technology, Industrial, Commodities and Financial Sector Funds suffered net redemptions ranging from USD185 million to USD910 million.
The redemptions from Financial Sector Funds, totalling USD910.7 million, were the largest since the first week of October, 2008, and occurred against a back-drop that included a huge trading loss at JP Morgan and turmoil in the Spanish banking sector. European weakness also weighed on Commodities Sector Funds, which extended their longest outflow streak since early 4Q11.
Despite the excitement surrounding Facebook’s IPO, Technology Sector Funds also extended their current outflow streak to three straight weeks as investors focused on the tougher 2H12 operating environment for technology companies predicted by investment banks and some of the companies themselves.
Utilities Sector Funds, meanwhile, took in fresh money for the third straight week -- their longest run YTD -- while Healthcare/Biotechnology Funds enjoyed their best week in over six months and Real Estate Sector Funds solidified their position as the biggest money magnets YTD.
US Bond Funds continued to dominate overall flows into EPFR Global-tracked Bond Funds during the week ending May 16, accounting for over 80% of the total net inflows. So far this year they have now absorbed USD103.7 billion, over 200% of the full year total for 2011, and remain on course to challenge the yearly inflow record of USD235 billion set in 2009. Once again flows into US Bond Fund favoured government debt firms in percentage of assets under management terms, with Long Term US Government Bond Funds having their second best week YTD.
But risk appetite, while plummeting in general terms, was still evident within the universe of fixed income funds. Emerging Market Bond Funds enjoyed another solid week that took YTD inflows over the USD20 billion mark, Municipal and Mortgage Backed Bond Funds extended their current inflow streaks to 36 and 62 weeks respectively and even Europe Bond Funds managed to post consecutive weekly inflows.
The only major bond fund group not to register inflows was High Yield Bond Funds, and that was due to tactical moves via a major ETF rather that a reversal of sentiment towards the asset class.
"Reports suggest that this weeks’ flows involved a single institutional investor who had built a large position via the secondary market in the High Yield Bond ETF over a several week period, and then redeemed their accumulated ETF shares last Thursday in exchange for the underlying bonds that make up the index," says EPFR Global Managing Director Ian Wilson. "Consequently, this "outflow" from this ETF was not a true outflow from the High Yield asset class but a shift from owning the bonds via the ETF to owning the bonds directly."
EPFR Global sent a notice to data clients explaining the aforementioned high yield "flow" activity earlier this week, which was first noticed in the daily fund flows data.
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