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Investors showing QE withdrawal symptoms ahead of Fed’s mid-December meeting

Although the US Federal Reserve has yet to hold their December meeting, investors have been acting as if it has already occurred and a vote to start winding down the current quantitative easing programme (QE3) took place.

During the week ending 11 December redemptions from EPFR Global-tracked bond funds hit their highest weekly total since late August, investors pulled over USD1.6bn out of both emerging markets equity and bond funds and outflows from commodities sector funds climbed to levels last seen in early July while commitments to floating rate bond funds jumped to a 10 week high.
Overall, bond funds posted a collective net outflow of USD4.2bn for the week while equity funds absorbed USD1.37bn and money market funds USD8.8bn.
“Interpreting this week’s equity fund flows is complicated by the fact that a number of major US equity funds went ex-dividend on Wednesday, with sizable capital gains distributions showing up as outflows until they are reinvested on Thursday which will appear as inflows next week. In addition, there were large unexplained flows – in excess of USD3bn – into several of a European fund manager’s Europe regional equity funds. Some of the inflows appear to be reallocations from Global products but the source of a large portion of the inflows cannot be confirmed,” says EPFR Global managing director Ian Wilson.
With three weeks of the year remaining over a dozen fund groups remain on course to post full year inflow records, among them Europe, convertible, floating rate and Colombia bond funds, balanced funds, industrials, infrastructure and healthcare/biotechnology sector funds and all five of the major developed markets equity fund groups. The group of funds expected to post a new outflow record includes commodities sector funds, Brazil equity and bond funds, Europe money market funds and US, inflation protected, mortgage backed and municipal bond funds.
Back-to-back weekly outflows for the first time since June with Germany bond funds accounting for nearly half of the overall redemptions. Investors did keep faith with Spain bond funds. But the European Central Bank’s continued reluctance to cut interest rates further or adopt unorthodox easing measure persuaded many that further gains for this asset class may be limited. Retail investors have now pulled money out of this fund group for five weeks running.
A rebound in flows into Russia equity funds helped EMEA equity funds snap a six week outflow streak during a week when South Africa was contemplating a future without Nelson Mandela. Four days after the death of the country’s first post-apartheid president South Africa equity funds posted their biggest daily outflow since 4Q07. But they ended the week with net outflows standing at a modest USD9m.
A stronger US economy and a Chinese one expected to grow at over seven per cent next year was not enough to light a fire under general commodities sector funds, with nearly half of the week’s overall redemptions attributable to funds investing in things other than gold and precious metals. That represents the biggest outflows from ex-gold commodities sector funds since mid-2Q12. As was the case the previous week energy sector funds overall posted outflows but energy master limited partnership (MLP) funds, which offer the benefits of a partnership structure with the ability to trade shares, extended their inflow streak.

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