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Money outflows

No thanks from investors for junk bond and US equity funds in late November, says EPFR

EPFR Global-tracked equity funds posted collective outflows of USD7.74bn during the week ending 21 November, while bond funds took in a net USD4.97bn.

Despite the hefty inflows recorded by money market funds and the big outflows posted by high yield bond funds, the latest numbers contained some bullish signals.

Emerging markets bond and equity funds both took in over USD1bn while flows into commodities sector funds investing in things other than gold and precious metals hit their highest level since the first week of 2Q11.

EPFR Global-tracked emerging markets equity funds posted their 11th consecutive week of inflows during the third week of November. The diversified global emerging markets (GEM) and Asia ex-Japan equity funds again accounted for all the inflows as Latin America and EMEA equity funds posted their fourth and seventh straight week of outflows respectively.

For the sixth week in a row China equity funds led the emerging markets country fund groups when it came to attracting fresh money as data from the country’s manufacturing sector shows signs of recovery. Once again, however, optimism about China did not translate into positive flows for Greater China or dedicated BRICs (Brazil, Russia, India and China) equity funds.

Outflows from EMEA equity funds hit a 25 week high as fresh political turmoil in Egypt added to the list of headwinds this fund group has faced in the second half of the year. Investors are also keeping their distance from Russia as they wait to see how its leadership responds to slowing growth, weaker global demand for energy and the challenges posed by its World Trade Organization obligations.

Developed markets equity funds remained under pressure in late November from the Eurozone’s economic weakness and uncertainty about US fiscal policy, although fund groups with more exposure to China’s story fared better.

Outflows from US equity funds were the second biggest in the 47 weeks year-to-date as retail redemptions hit levels last seen in late 1Q12. The 22 week inflow streak into Europe-domiciled US equity funds also came to an end. Since the last week of September, over USD36bn has been removed from all funds in this group. The uncertainty about the fiscal cliff also had an impact on Canada equity funds, which posted their third biggest outflow YTD.

Europe equity funds recorded outflows of USD528m, with Europe regional and Germany equity funds accounting for the bulk of the redemptions. While some fund managers now argue that the Eurozone has hit bottom, few are predicting any meaningful growth before 2014. Italy, however, continues to swim against the tide, with Italy equity funds attracting fresh money for the ninth time in the past 11 months.

Flows into Japan equity funds were also positive, with retail commitments hitting their highest level since early 3Q11, as investors anticipate a more competitive currency for exporters if the current opposition party wins mid-December’s snap election.

The major diversified developed markets fund group, global equity funds, recorded inflows of the 11th time in the past 12 weeks.

With the 3Q12 earnings season done and dusted and the holiday season ahead, investors booked gains on many of their sector positions during the third week on November. Only three of the 11 major EPFR Global-tracked sector fund groups recorded inflows during the week and only two of those took in over USD50m.

Commodities sector funds were the standout in terms of attracting fresh money, absorbing over USD1.7bn. In contrast to previous weeks, however, flows into funds dedicated to gold and precious metals only accounted for only a quarter of the total.

Elsewhere, financial sector funds posted back-to-back weeks of outflows, redemptions from real estate and utilities sector funds hit a 20 and 38 week highs respectively and technology sector funds saw their outflow streak hit eight straight weeks.

EPFR Global-tracked high yield bond funds posted consecutive weekly outflows for the first time since mid-2Q12 as investors continued to reassess some of the riskier fixed income asset classes. In some cases, such as emerging markets local currency and European sovereign debt, investors are opting to increase their exposure to these riskier assets as the year draws to a close. For the fourth week running emerging markets local currency bond funds took in more money that their local currency counterparts while Europe bond funds extended their inflow streak to five straight weeks.

The USD5.7bn taken in by Europe bond funds represents their best run since the current financial crisis began in 2007. Investors are showing a preference for diversified exposure or non-Eurozone country funds.

Flows into US bond funds were anchored by commitments to intermediate term, municipal and short term bond funds, suggesting that more investors are focusing on the likely tax implications of the likely solutions to the fiscal deadlines facing the US. The flows into US municipal bond funds were the highest in 14 weeks.

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