Global uncertainty favours US fund groups
Flows into EPFR Global-tracked equity and bond funds during the third week of July were dominated by US fund groups as corporate earnings, macroeconomic data and geopolitics provided plenty of mixed signals for investors.
Against a backdrop that included a sharp escalation in Syria’s civil war, data showing China’s economy growing at the slowest pace in three years and Spanish bond yields testing seven per cent again, investors committed USD3.1bn to US bond funds and USD6bn to US equity funds.
Total flows for all bond and equity funds in the week ending 18 July totalled USD4.7bn and USD5.1bn respectively while money market funds experienced net redemptions of USD10.5bn.
Yield remains an issue for investors at a time when the safest short-term government debt is selling for over 100 cents on the dollar. High yield bond funds took in over USD1bn for the fifth straight week, investors committed over USD900m to emerging market bond funds and flows into dividend equity funds, which stumbled in mid-June, accelerated for the fourth consecutive week and hit an 11 week high.
The appetite for EM debt did not extend to equities. Redemptions from emerging market equity funds jumped to a six week high as rising agricultural commodity prices cooled expectations of more fiscal and monetary stimulus in key markets.
Retail investors pulled money out of EPFR Global-tracked emerging market equity funds for the 20th week running in mid-July, helping to end the first inflow streak since late 1Q12, as optimism about additional stimulus was tempered by the impact an extended drought in the US could have on global food prices and, by extension, inflation rates. All four of the major fund groups posted outflows ranging from USD52m for EMEA equity funds to USD305m for Asia ex-Japan equity funds.
The redemptions from Asia ex-Japan equity funds were the 11th in the past 12 weeks. Investors continue to question the outlook for many of the regional markets in light of slowing European and Chinese demand for their exports. China equity funds did snap an 11 week outflow steak after weaker GDP data boosted hopes of additional stimulus. But over USD120m was pulled out of India equity funds. Lagging monsoon rainfall threatens to stoke India’s already high food inflation and sap rural incomes.
Among the Latin America equity fund groups, those dedicated to Mexico saw redemptions jump to an 18 week high.
"You are probably seeing some profit taking by investors who know the promises of economic reform made by the incoming government, which helped lift Mexican equities to a new record high this week, will almost inevitably lose some of their shine when translated into policy," says EPFR Global research director Cameron Brandt.
The usual suspects - generally weak commodity prices, the unresolved Eurozone debt crisis and violence in the Middle East - saw EMEA equity funds’ three week inflow streak come to an end. But Turkey equity funds took in fresh money for the sixth week running as investors continue to respond to a recent ratings upgrade and the benefits that lower oil prices have on Turkey’s production costs and public finances.
Interest in EPFR Global-tracked developed market equity funds climbed several notches during the week ending 18 July, especially for fund groups offering US or diversified exposure. US equity funds had their fifth biggest weekly inflow year-to-date and global equity funds their third biggest while commitments to Pacific equity funds hit a 27 week high.
Europe equity funds remained in the shadow of the Eurozone crisis, posting outflows for the seventh time in the past nine weeks, as investors waited for regional policymakers to put flesh on the bones of the deal they announced in late June. Germany equity funds did snap their three week outflow streak and all the fund groups associated with the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) markets posted modest inflows. Spain equity funds have now taken in new money 13 of the past 16 weeks.
Actively managed Japan equity funds recorded outflows for the first time in three weeks as a stronger yen kept the pressure on exporters and the Bank of Japan declined to take additional easing measures. But improved domestic demand has started to garner attention as the strong yen and reconstruction spending bolster the purchasing power of Japanese consumers.
US equity funds enjoyed solid flows on the back of commitments to large and small cap blend ETFs, which between them accounted for over USD3.5bn of the total inflows of USD6.5bn for the fund group. YTD all US ETFs have absorbed USD30.5bn while actively managed funds have seen net outflows of USD39.9bn.
Both of the major diversified developed market equity fund groups took in fresh money with global bond funds absorbing USD964m and Pacific equity funds USD103m.
Real estate sector funds topped the list of major EPFR Global-tracked sector fund groups that attracted fresh money during the week ending 18 July as recent data suggests the US housing market has turned the corner. There was some defensiveness in the sector flows, data with healthcare/biotech receiving USD460m of inflows and telecom sector funds with the strongest inflows on a percentage of assets basis. Energy and industrial sector funds also recorded inflows of over USD400m for the week.
YTD commodities sector funds remain the biggest money magnets, although flows in recent weeks have faded in the face of slowing global growth and a stronger US dollar that has clipped the demand for gold and precious metals. Funds with an agricultural focus did, however, extend their longest inflow streak since late 3Q11.
Financial sector funds continued to show a Teflon-like ability to shrug off bad news, taking in new money for the sixth time in the past nine weeks despite some poor earnings reports from US investment banks, the money-laundering scandal that has engulfed HSBC and the uncertainty surrounding the bailout package for Spain’s banking system.
- Special Reports
- How to set up a hedge fund