Investors pulled more than $55 billion (Dh202bn) out of money market funds during the week ending June 19, the biggest weekly outflow from this fund group since EPFR Global started tracking them. Emerging markets, commodities and bond funds continued to attract fresh cash despite a dearth of encouraging macroeconomic data, said the research firm.
Policy initiatives, the debate about China's growth prospects and a sharp – albeit temporary – drop in risk appetite also shaped fund flows in mid-June. Overall, EPFR-tracked equity funds posted inflows of $508 million for the week as flows into emerging markets and global equity funds offset modest outflows from the US, Japan and Europe equity funds. Flows into fixed-income funds (excluding money market funds) totalled $3.1bn. "While quarterly tax payments in the US and the arbitrage opportunities presented by the rebalancing of major index funds exaggerated this week's outflows from money market funds, the overall flow data was in keeping with the pattern in effect since mid-March," said EPFR Global Senior Analyst Cameron Brandt. "Cash continues moving off the sidelines in search of higher returns and a degree of protection against the anticipated dollar weakness."
Monthly data for May shows that all emerging markets equity funds absorbed a net $17bn, two-thirds of the year-to-date inflows through the end of that month, while bond funds collectively took in $21bn and money market funds surrendered a net $27bn. Flows into emerging markets equity funds moderated in mid-June as US economic data disappointed, the International Monetary Fund threw cold water on hopes for a swift global recovery and Chinese officials talked down their country's growth prospects.
But all four of the major fund groups posted inflows ranging from $693m for Asia ex-Japan equity funds to $113m for Emea equity funds, collectively.
EPFR-tracked emerging markets equity funds have now taken in fresh money for 15 straight weeks, their best showing since an 18-week run that ended in the first quarter of 2006.
India funds
With questions being asked about the composition of Chinese growth, funds investing in India were the biggest contributors to Asia ex-Japan equity fund flows during the week ending June 17. India equity funds absorbed a net $156m – despite posting negative performance numbers for the first time in eight weeks – compared to $24m for China equity funds.
Russia equity funds posted inflows for the 14th straight week and Brazil equity funds took in $133m as the BRIC (Brazil, Russia, India and China) theme continued to play well with investors. Emerging Europe equity funds, which kicked off the year with a 13-week losing run, posted their seventh straight week of inflows.
Although their fixed-income counterparts fared well as risk appetite dipped, US equity funds posted outflows totalling $1bn during the week ending June 17, as flows into small- and mid-cap funds were offset by outflows from large-cap exchange-traded funds (ETFs).
For the first time in five weeks, funds managed for value outperformed their growth counterparts at the large- and mid-cap levels.
Europe equity funds also posted outflows as remarks from the European Central Bank added to existing concerns about the exposure of the region's banking system to crumbling East European markets and the degree to which it has come clean about the bad debt already on its books. Investors pulled a net $580m out of this fund group, with regional funds accounting for the bulk of the redemptions.
Investors also pulled money out of Japan equity funds despite rising consumer and business confidence in the world's second largest economy.
Year-to-date outflows from this fund group now exceed $3.7bn and, when expressed as a percentage of assets under management, are by far the worst of any major fund group.
The two major diversified fund groups geared primarily to developed markets both extended their current winning runs, with global equity funds absorbing another $974m and Pacific equity funds taking in a net $53m.
Sector funds
During a volatile week, the sector fund group with the worst performance numbers attracted the most money while the best performer recorded the biggest outflows. Commodity sector funds ended the week of June 17 with net inflows of $273m despite posting a collective loss of 6.64 per cent while the 0.9 per cent gain recorded by healthcare/ biotechnology sector funds failed to stem redemptions totaling $464m.
Commodity and energy sector funds have now recorded inflows for 15 and 11 consecutive weeks, respectively, as hopes for global growth and fears of US dollar weakness have attracted investors to these asset classes.
Fears about major policy shifts in the US , meanwhile, have weighed on healthcare/biotechnology and – to a lesser extent – financial sector funds, EPFR said. The former have posted outflows 16 of the past 18 weeks, the latter four of the past five.
While bulls struggled for traction in mid-June, the doubts that roiled global markets did create some buying opportunities. Technology sector funds, which ended a four-week losing run the previous week, took in another $72m.
Bond and fixed-income funds
Although it was a rough week for money market funds, other fixed income fund groups fared well during the week ending June 17.
US bond funds maintained their record of posting inflows every week year-to-date, high yield bond funds extended their current winning run to 14 weeks and $9.6bn, emerging markets and global bond funds took in fresh money for the 10th straight week and year-to-date outflows from balanced funds, which peaked at $4.6bn in early March, dropped below $2bn.
With the spread between US Treasury and JP Morgan's benchmark EMBI+ index rebounding from 412 basis points to more than 435, emerging market bond funds specialising in hard currency debt accounted for the bulk of the week's inflows, which fell to an eight week low.
Although overall flows into US bond funds remain strong given the huge sovereign issuance, investors are beginning to differentiate, said Brad Durham, Managing Director, EPFR Global.
"The short-term government bond funds we track are seeing a rush to the exits while the inflation protected funds have been getting some inflows of late, reflecting growing investor concern over inflation," he said.
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