Amidst a sea of troubles, real and potential, mutual fund investors focused on Europe during the week ending February 17. EPFR Global-tracked Europe Equity Funds recorded their biggest weekly outflow since early 4Q14 and Europe Bond Funds saw over $1.5 billion redeemed against a backdrop of more stock market volatility, underwhelming 4Q15 macroeconomic numbers, the possibility of a British vote to leave the European Union and the general backlash against negative interest rates.
In addition to aggressively cutting their exposure to Europe, investors continued to seek the perceived safety of US sovereign and municipal debt, gold and utilities. Flows into Gold Funds hit a 56-week high, US Bond Funds took in nearly $6 billion and Utilities Sector Funds extended their longest inflow streak since 1Q15.
Overall, the third week of February saw EPFR Global-tracked Bond Funds absorb a net $1 billion while $12 billion flowed out of Equity Funds and $4 billion from Money Market Funds.
At the asset class level, Inflation Protected Bond Funds snapped a three-week run of outflows and Dividend Equity Funds experienced net redemptions for the 30th time in the 34 weeks since the beginning of July. Among the country and regional fund groups Frontier Markets Equity Funds extended an outflow streak stretching back to mid-October and investors pulled nearly $1 billion – a nine month high – out of Germany Equity Funds.
The longest outflow streak since the 2013-14 ‘taper tantrum’ continued for EPFR Global-tracked Emerging Markets Equity Funds during the third week of February as weak energy and commodity prices, doubts about global economic growth and the prospect of further increases in US interest rates kept investors on edge. The pace of redemptions was, however, noticeably lower as some bargain hunting, hopes that oil prices are finding bottom and expectations that there will be fewer US rate increases than expected coming into the New Year boosted emerging markets assets.
China Equity Funds posted modest inflows on the back of fresh local currency denominated commitments. Foreign investors remain leery despite efforts by fund managers to highlight the evidence that efforts by Chinese policymakers to rebalance the country’s economy in favor of domestic consumption and service industries are enjoying some success.
The cautious reassessment of Latin America’s prospects in light of political change in Argentina and Venezuela and expectations Brazil’s economic woes will force it to adopt more orthodox economic policies helped Latin America Equity Funds post inflows for the 10th time in the past 15 weeks. The bulk of the new money went to Mexico Country Funds ahead of an unexpected rate hike aimed at defending the country’s currency, although the smaller Chile and Colombia Equity Fund groups both posted inflows in excess of 2.5% of AUM.
Flows into EMEA Equity Funds stalled as investors digested the latest downgrades of several major oil producers and reassessed the outlook for Emerging European markets in light of weaker 4Q15 Eurozone data.
For the second week running the four biggest EPFR Global-tracked Developed Equity Fund groups posted net outflows, with US Equity Funds again experiencing the biggest redemptions in cash terms while Europe Equity Funds supplanted Japan Equity Funds as the hardest hit in flows as a % of AUM terms.
In addition to general worries about the impact of negative interest rates on bank’s profitability and capacity to lend, Europe Equity Funds had to ride out lackluster data from the fourth quarter and
early 2016, the European Central Bank’s admission that headwinds are building and reminders that warmer weather will accelerate the flow of immigrants into Europe. In contrast to the past two years, the assumption that this will prompt the ECB to unveil further stimulus measures is not providing a strong boost for fund flows or regional equity markets.
A newfound wariness about the long-term implications of massive quantitative easing has also hit the previously buoyant flows into Japan Equity Funds. With a stronger yen chipping away at the competitiveness of major export plays, Japan Equity Funds tied their longest outflow streak since early 4Q14.
EPFR Global, a subsidiary of Informa plc (LSE: INF), provides fund flows and asset allocation data to financial institutions around the world. Tracking over 65,000 traditional and alternative funds domiciled globally with $24.5 trillion in total assets under management, we deliver a complete picture of institutional and retail investor flows and fund manager allocations driving global markets. Our market moving data services include daily, weekly and monthly equity and fixed income fund flows and monthly fund allocations by country, sector and industry.