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US equity fund inflows best in more than a year

During the fourth week of November EPFR Global-tracked US equity funds attracted over USD10bn in net inflows, their best showing in more than a year, as flows into China equity funds slipped to a seven week low.

This optimism also boosted appetite for riskier asset classes. Flows into emerging markets equity funds hit a 10 week high while both high yield bond and alternative funds snapped two week outflow streaks.

Overall, EPFR Global-tracked equity funds recorded inflows of USD14.86bn during the week - their second highest total year-to-date - while bond funds took in a net USD5.17bn and money market funds USD5.87bn.

Despite a spike in the number of US firms announcing special dividends and the strong flows into equity funds in general, dividend equity funds again undershot the USD772m weekly average they maintained through the first nine months of the year.

Having driven flows for emerging markets equity funds since mid-October, China’s economic story took a back seat to the US’s during the fourth week of November. Hope that the world’s largest economy will get its fiscal house in some kind of order saw this fund group attract over USD3bn as retail commitments climbed to a 41 week high. The diversified global emerging markets accounted for the biggest share of the overall inflows with Asia ex-Japan equity funds again standing out among the three major regional groups.

In contrast to previous weeks, Taiwan and Korea equity funds led the emerging Asia country fund groups, with China equity funds pulling in USD155m as one of the country’s main equities indexes slid to a four year low. Taiwan equity funds posted their biggest weekly inflow since early 3Q11 while commitments to Korea equity funds hit a 13 week high.

EMEA equity funds continue to struggle with headwinds ranging from Egypt’s political struggles, the Eurozone debt crisis, Russia’s cooling economy and further violence in South Africa’s mining sector. Redemptions from emerging Europe regional funds hit a 28 week high in spite of the Eurozone’s latest debt deal with Greece, Russia equity funds recorded their eighth consecutive week of outflows and Middle East regional funds had their worst week - in flow terms - since late March.

Optimism about the US translated into flows at four and six week highs for Colombia and Mexico equity funds. But Latin America equity funds overall recorded outflows for the fifth week in a row.

Perceptions of a thaw in the debate over the best way to tackle US fiscal imbalances and the unveiling of a new plan to tackle Greece’s crushing debt burden proved supportive for most of the major EPFR Global-tracked developed markets equity fund groups in late November. US equity funds posted their biggest inflow in over a year and Global, Japan, Europe, Pacific, Canada and Germany equity funds took in fresh money as well.

The strong flows into US equity funds were driven by institutional investors - their retail counterparts pulled money out for the 46th time in the 48 weeks YTD - and favoured large cap ETFs.

Retail investors did steer some money into Europe equity funds during a week when a fresh effort was initiated to cut Greece’s debt utilising a buyback, extension of existing maturities and cutting of the interest rate on earlier loans. Germany equity funds snapped a five week outflow streak, but France equity funds extended an outflow streak extending back to mid-September as the French government threatened to nationalise a private steelmaker. US-domiciled Europe equity funds took in new money for the 16th straight week.

Japan equity funds extended their current inflow streak to three straight weeks as they remain on course for their biggest yearly inflow since 2005. The election scheduled for 16 December is widely expected to result in a chance of government and a shift in economic policy that favours more aggressive monetary and fiscal stimulus.

Global equity funds, the major diversified developed markets fund group, took in over USD800m which pulled their YTD outflow total below the USD13bn mark.

Going into the final month of 2012 six of the 11 major sector fund groups tracked by EPFR Global had YTD gains north of 10 per cent, with three of those sitting on gains of over 20 per cent, while only one energy sector funds had a negative return. During the week ending 28 November investors again took some of those gains off the table or rotated them into gold and precious metals funds: as was the case the previous week only three groups recorded inflows during the week and only two of those took in over USD50m.

Commodities sector funds again attracted the most money, though this was entirely due to interest in gold and precious metals with those funds accounting for all of the week’s net inflows. None of the other fund groups associated with growth recorded inflows. Technology sector funds posted inflows for the ninth straight week, their worst run since a 13 week streak ended in 2Q07, while energy and financial sector funds both experienced net redemptions for the third straight week.

Recent data from one major ETF provider shows that the biggest increases short interest over the course of October occurred in funds focusing on the materials, utilities, financials and technology sectors consumer staples, healthcare and telecom ETFs saw the biggest reductions.

During the final week of November flows into EPFR Global-tracked bond funds followed the pattern they established for much of 2012. High yield and emerging markets bond funds both posted solid inflows, with the latter seeing a preference for hard currency exposure, while US, municipal, mortgage backed and global bond funds extended inflow streaks that stretch back anywhere from late 2Q12 to 1Q11.

Flows into US bond funds were broadly based, with seven sub-groups taking in between USD150m and USD600m. US floating rate funds recorded their 24th consecutive week of inflows but redemptions from long and short term government bond funds hit seven and eight week highs respectively.

Europe bond funds took in fresh money for the sixth straight week, but investor focus was squarely on non-Eurozone markets with Norway, Sweden and Switzerland bond funds accounting for the bulk of the week’s inflows.

For the first time in five weeks hard currency emerging markets bond funds outgained their local currency counterparts as investors and fund managers respond to a jump in new issues - sovereign and corporate - coming to market.

Balanced funds, which invest in both bonds and equities, snapped a two week inflow streak by taking in USD228m.

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