Investors pulled $10.4 billion (Dh38.2bn) out of equity funds and another $568 million out of bond funds during the week ended on Friday with US funds bearing the brunt of the negative flows, data released by EPFR Global showed.
US equity funds accounted for more than 60 per cent of the equity fund outflows while US bond funds were the only non-money market fixed income group to post inflows.
Outflows from Emea and Asia ex-Japan equity funds hit 16- and 17-week highs respectively while redemptions from Japan equity funds hit a 47-week high.
Although commodity sector and Latin America equity funds continued their winning runs, the strength of recent bullish signals dimmed appreciably.
Investors snapped the high-yield bond funds' 12-week inflow streak, removing $207m from these funds, and committed fresh money to money market funds for the first time in four weeks, EPFR reported.
"Since the New Year, the global economy has been doing its best to stamp out the last embers of investor optimism, churning out a seemingly endless stream of earnings and ratings downgrades, statistics preceded by negative signs, bankruptcies and warnings of future pain.
"The cumulative effects of this were reflected in the latest fund flow numbers, with collective outflows from EPFR Global-tracked equity funds during the fourth week of February reaching levels last seen in mid-October," an EPFR statement said.
For the second week running, all of the major EPFR Global-tracked equity fund groups geared primarily to developed markets posted outflows, with US equity funds again suffering the most in dollar terms and Japan equity funds in percentage terms.
Redemptions from US equity funds were spread across all capitalisations and investment styles as investors waited for the US President, Barack Obama, to spell out his economic goals which, to a degree, he did in his administration's proposed budget for 2010.
Among the things the $3.6 trillion plan calls for are higher capital gains and other taxes falling predominantly on the rich, middle and lower class tax cuts, more funds to shore up the banking system, reforms to the country's healthcare system and a budget deficit of $1.17bn.
For the fourth straight week, funds investing in growth stocks outperformed their value counterparts across all capitalisations, although the opposite was again true for fund flows.
While investors in the US were digesting Obama's spending plans, outflows from Japan equity funds hit their highest level in dollar terms since late March 2008, as export data for January indicated a nearly 50 per cent drop year-on-year.
"Consumer and domestic capital spending are also down, making it very hard for investors to identify any short-term driver that might lift the Japanese economy out of its slump," said EPFR Global Senior Analyst Cameron Brandt.
"The fact that Korean car companies appear to be wresting market share from Japanese rivals in the US has also raised questions about the strength of any export-led recovery."
Europe equity fund flows were also negative, to the tune of $786m, as consumer and business confidence in the region continued to tumble, credit remained tight and countries tied to the euro saw their competitive advantage erode.
The recent questions about the exposure of banks based in developed European markets to souring loans in emerging European markets has also revived the perception that Europe's financial sector and its overseers lag their US counterparts in identifying, admitting to and dealing with the bad debt spawned by the 2002-2007 liquidity boom.
The two major diversified fund groups investing primarily in developed markets both posted outflows. Global equity funds surrendered a net $1.77bn, their worst showing in 20 weeks, while outflows from Pacific equity funds totalled a more modest $44m.
Latin America equity funds were the only one of the four the major emerging markets equity fund groups tracked by EPFR Global to post inflows during the week ending February 26, extending their winning streak to eight weeks and $795m.
Outflows from Asia ex-Japan equity funds totalled $922m, Emea equity funds lost $231m to investor redemptions, and $149m was pulled from the diversified Global Emerging Markets (Gem) equity funds. China was again the key driver of flows out of Asia ex-Japan equity funds. Investors pulled $543m out of China equity funds, bringing the two week total close to $1bn, while net redemptions from India and Korea equity funds were both under $40m.
The outflows from China equity funds run counter to the relative outperformance of the country's equity markets, a warming trend in some official statistics and some bullish predictions from analysts. Brazil equity funds took in fresh cash for a fifth straight week, but it was flows into diversified regional funds that helped Latin America equity funds keep their streak going.
Emerging Europe equity funds, which suffered because of fresh concerns about the regions ability to service both the private and public debt it gas accumulated, were the biggest contributors to Emea equity funds' overall outflow tally.
Commodities sector funds again stood out among the major sector fund groups in late February, absorbing another $556m and extending their inflow streak to 11 weeks and $2.88bn despite posting the week's worst performance numbers. With an Opec meeting that could lead to tighter oil supplies coming up in March, the second worst performers – energy sector funds – also took in fresh money during the week ending February 26. All of the other fund groups posted outflows ranging from $326m for financial sector funds to $21m for both technology and telecom sector funds.
Utilities sector funds currently own the longest outflow streak, five straight weeks, and are one of five sector fund groups where flows year-to-date are negative.
Bond fund flows
Flows into fixed-income funds took on a more defensive look in late February, with money market and US bond funds posting inflows of $1bn and $831m respectively while the other four major groups recorded outflows ranging from $968m for balanced funds to $207m for high-yield bond funds.
The outflows were the 51st in 53 weeks for global bond funds and the 28th in 29 weeks for emerging markets bond funds.
Higher risk aversion was evident in the flow data for emerging markets bond funds, with those investing primarily in local currency debt – which were investor favourites during 1H08 - accounting for nearly 80 per cent of total outflows.
The outflows from balanced funds, which invest in both equity and fixed income assets and have in the past been viewed as a conservative option for investors, represented the 29th straight week this fund group has surrendered money.