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Emerging markets equity funds hit by institutional exodus in late January

EPFR Global-tracked emerging markets equity funds posted their biggest outflow since mid-Q3 2011 heading into the final days of January as institutional redemptions hit their highest level in nearly three years.

Investors also pulled significant sums out of emerging markets bond and US equity funds during the week ending 29 January.
 
But they continued to pump money into Japan, global and Europe equity funds and boosted their commitments to balanced and real estate sector funds.
 
Overall, equity funds collectively posted net outflows of USD10.4bn versus USD1.88bn for bond funds and USD11.53bn for money market funds. The performance gap between developed and emerging markets fund groups since the start of last year narrowed slightly for equity funds – although it remained above 29 per cent – but increased for bond funds.
 
At the country level Turkey and China equity funds continued to swim against the tide, as did Poland, Colombia, Korea and China bond funds, and fund groups dedicated to the so-called PIIGS markets – Portugal, Italy, Ireland, Greece and Spain – enjoyed another solid week with both Italy and Spain equity funds absorbing over USD100m.
 
Institutional investors accounted for over USD5bn of the USD6.33bn that flowed out of EPFR Global-tracked emerging markets equity funds during the fourth week of January as all four of the major fund groups recorded significant redemptions. The diversified global emerging markets equity funds posted their biggest outflow on record in US dollar terms and the biggest since 1Q11 in flows as a percentage of assets under management terms while redemptions from EMEA, Latin America and Asia ex-Japan equity funds were the biggest since mid-December, mid-November and early September respectively.

 
Flows into EPFR Global-tracked sector funds took on a more defensive flavour during the fourth week of January as the volatility surrounding emerging markets took its toll. Commodities sector funds posted outflows for the 18th week running, energy sector funds recorded their biggest outflow since mid-2Q12 and industrials sector funds saw an inflow streak stretching back to early November come to an end. Among the groups attracting fresh money real estate sector funds stood out. Despite the Fed’s decision to keep winding down its current quantitative easing program these funds collectively pulled in the most new money since the third week of May. Flows into US real estate sector funds jumped to an eight month high while Japan real estate sector funds posted inflows for the 26th time in the past 27 weeks.
 
EPFR Global-tracked bond funds saw their three week inflow streak come to an end in late January as the US Federal Reserve pressed ahead with its ‘tapering’ of QE3 and central banks in a number of key emerging markets hiked rates to protect faltering currencies.  Investors did steer fresh money into Europe bond funds, although commitments to Spain bond funds fell to a 17 week low, while flows into balanced and US municipal bond funds hit levels last seen in July and February of 2013. The flows into US municipal bond funds reflect the strong start to the year enjoyed by this asset class as investors look to reduce their risk in a fixed income universe adjusting to the winding down of QE3. After a tough 2013 the supply of new municipal debt has slowed and some issues in the secondary market have been oversold in response to the well-publicised troubles of Detroit and Puerto Rico.

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