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EM equity and energy funds hit hardest in aftermath of Greek and French elections

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EPFR Global-tracked Emerging Markets Equity Funds posted their biggest outflow YTD during the first week of May as fears of a deeper recession in Europe and more mixed data from China prompted investors to lower the bar for emerging markets exporters.

All four of the major fund groups posted outflows ranging from USD598 million for the diversified Global Emerging Markets (GEM) Equity Funds to USD75 million for Asia ex-Japan Equity Funds. Retail investors redeemed money from these funds for the 11th week running.

Although weaker than expected Chinese trade data dominated the headlines, investors focusing on Emerging Asia paid more attention to India’s growing deficits and slumping rupee with India Equity Funds seeing the biggest redemptions among Asia Country Fund groups. These funds have now experienced net redemptions for nine consecutive weeks, their longest since a 15 week run ended in late October, and they are the second worst performer year-to-date after Indonesia Equity Funds. All three best performing regional country fund groups, Philippines, Vietnam and Thailand Equity Funds, took in fresh money with the latter having their best week in over two years.

EMEA Equity Funds suffered from the chillier outlook for the European Union and its demand for Russian and Emerging European exports. Russia Equity Funds posted their biggest outflow since December while Emerging Europe Equity Funds experienced net redemptions for the 13th week in a row.

The more cautious assessment of Russia and China’s prospects and the discomfort with India spilled over to the BRICs (Brazil, Russia, India and China) theme, with dedicated BRIC Equity Funds posting outflows for the ninth week in a row. YTD flows for this fund group are now in negative territory. But funds linked to the other major emerging markets themes continue to attract fresh money. Funds within the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa) grouping have taken in over USD900 million YTD versus outflows of USD865 million for the comparable period last year.

Elections that left Greece without a functioning government and returned an avowed opponent of austerity to the French presidency left developed market investors contemplating the risks of a disorderly Greek exit from the Eurozone and a policy rift between the Eurozone’s two largest economies. Three of the five major EPFR Global-tracked Developed Markets Equity Fund groups posted outflows during the week ending May 9, led by the USD4.78 billion pulled out of US Equity Funds.

Although events in Europe had much to do with the declines posted by most of the world’s equity indexes, Europe Equity Funds managed to post their biggest weekly inflow since July of last year as institutional investors shifted money into German Equity ETFs. That offset modest redemptions from regional and some country fund groups with France Equity Funds seeing the biggest redemptions among the latter.

ETFs also played a central role in the outflows recorded by US Equity Funds as investors sought to side-step the steady decline in US equities triggered by events in Europe which shaved 3.4% off the value of the average fund portfolio. YTD these funds, which ended the first quarter with modest inflows, have now seen over USD7 billion pulled out.

Despite seeing the biggest retail redemptions since the final week of 1Q11 Japan Equity Funds extended their current inflow streak to four straight weeks as institutional investors responded to the optimistic outlook for corporate earnings and the general commitment of Japanese policymakers to further stimulus.
Global Equity funds recorded their fourth consecutive week of inflows. But the other major diversified fund groups, Pacific Equity Funds, saw a three week inflow streak snapped in spite of the enthusiasm for Japan. 

With events in Europe and weaker than expected Chinese trade data letting more air out of full-year forecasts for the global economy, EPFR Global-tracked Sector Funds struggled to attract fresh money during the first week of May. Fund groups associated with growth had the toughest time. Redemptions from Energy Sector Funds hit levels last seen in early 2Q11 and investors pulled another USD815 million out of Commodity Sector Funds.

Higher oil production, growing inventories and flattening demand have taken a toll on sentiment towards energy plays while growth fears and the relative strength of the US economy contributed to the latest redemptions from Commodities Sector Funds and the gold and precious metals sub-groups.

Industrials, Technology and Financial Sector Funds also posted outflows in the USD150 million range, with the latter so far shrugging off the turmoil in Spain’s banking sector and the possibility of a disorderly Greek default on its sovereign debt.

Only two fund groups, Utilities and Real Estate Sector Funds, recorded inflows for the week. Utilities Sector Funds have seen the biggest redemptions YTD while Real Estate Sector Funds have now supplanted Commodities Sector Funds as the YTD inflow leader. 

US Bond Funds extended their dominance of the fixed income fund flows during the first week of May, taking in a 24 week high of USD6.46 billion that accounted for over 75% of total inflows for all EPFR Global-tracked Bond Funds. But, within the fixed income universe, there was evidence that risk appetite has not been completely extinguished; flows into Europe and Emerging Markets Bond Funds climbed to 14 and eight week highs respectively while YTD flows into High Yield Bond Funds moved over the USD36 billion mark.

The flows into Europe Bond Funds, which snapped a four week outflow streak, were anchored by the seventh straight week of flows into dedicated Germany Bond Funds. This willingness to reserve judgment on the impact of the Greek and French elections of the Eurozone crisis also helped Global Bond Funds record solid inflows despite their heavy exposure to Developed European debt.

At the asset class level Municipal Bond Funds recorded their biggest inflow since the second week of March and Mortgage Backed Bond Funds took in fresh money for the 61st straight week. But Inflation Protected Bond Funds saw their three week inflow streak some to an end.

Flows into US Bond Fund again favoured government debt firms when viewed in percentage of assets under management terms, with Short, Intermediate and Long Term Government Bond Funds all taking in over USD300 million.
 

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