The first full week of February proved a painful one for emerging markets equity funds, particularly the diversified global emerging markets equity funds, as investors pulled another USD2.9bn out of these funds, with USD1.76bn – a 60 week high – coming from the GEM funds.
Concerns about the possible spillover effects of Greece’s fiscal crisis also hit high yield bond funds: those tracked by EPFR Global posted their biggest weekly outflow since early 3Q08.
Investors did keep faith with global and US bond funds, extending their current inflow streaks to 43 and 58 straight weeks respectively, and committed nearly USD700m to emerging markets bond funds. They also committed fresh money to Japan equity funds.
With yields at record lows, cash continued to flow out of money market funds despite the uncertain investment landscape. Redemptions during the week ending 10 February totalled USD9.62bn, taking year-to-date outflows close to the USD80bn mark.
Overall, EPFR Global-tracked bond funds posted collective inflows of USD3.7bn, boosted their YTD tally to USD26.05bn, while their equity counterparts saw a net USD5.34bn flow out during the week ending 10 February.
Collective outflows from EPFR Global-tracked emerging markets equity funds jumped to their highest weekly level since the week ending 9 July 2008, as investors fretted that Greece’s sovereign debt woes could drive up yields, and hence credit costs, worldwide. Further talk by US Federal Reserve officials about an “exit strategy” also weighed on sentiment towards this asset class.
All four of the major emerging markets fund groups posted outflows, with EMEA and Asia ex-Japan equity funds having their worst week since early November and mid-August respectively while Latin America equity funds recorded net redemptions for the third straight week that left them in negative territory YTD for the first time since early 1Q08.
In the case of Asia ex-Japan equity funds, the possibility of a Sino-US trade spat over a proposed arms sale to Taiwan kept investors on edge, although they rewarded the robust rebound in Taiwanese exports by committing another USD64m to Taiwan equity funds. They also steered fresh money into Vietnam equity funds for the eighth week in a row.
EMEA equity funds suffered due to the hiatus in the global commodities story. Predictions of weaker than expected demand for energy saw Russia equity funds, which carried an eight week inflow streak into the New Year, post their third straight week of outflows. The burgeoning competition for African resources, however, still resonated with investors: Africa regional equity funds saw their current inflow streak hit 23 straight weeks.
Any flight to the perceived safety of developed markets equity funds ground to halt during the week ending 10 February, with EPFR Global-tracked US, global, Pacific and Europe equity funds all posting outflows. Japan equity funds were the exception, posting their seventh consecutive week of inflows – their longest winning streak since a ten-week run that ended in early July 2008. Investors opted to focus on the pick-up in Japanese corporate spending on new machinery, a tangible indicator of confidence in future demand, rather than another major recall – this time by Honda – and lacklustre bank lending figures.
Flows in and out of Europe equity funds were essentially neutral as some investors sought to distance themselves from possible contagion from Greece’s sovereign debt issues while others re-rated major export plays in light of the euro‚s depreciation versus the US dollar.
US equity funds also experienced modest outflows as redemptions from large and mid-cap funds more than offset the new money taken in by US energy sector and passively managed small cap blend funds. Net redemptions from US equity funds, which have yet to register weekly inflows YTD, now stand at USD21bn.
Global Equity Funds, one of the two major diversified fund groups that invest primarily to developed markets, saw a 33-week high of USD791m redeemed by investors while Pacific equity funds recorded their third consecutive week of outflows.
A stronger US dollar, fresh doubts about the strength of the global economic recovery and falling prices kept the pressure on EPFR Global-tracked commodity sector funds during early February. These funds, which accounted for two-thirds of all the new money committed to sector funds during 2009, posted a sixth consecutive week of outflows – their longest losing streak in over three years – as investors redeemed a 67-week high of USD526m.
Doubts about industrial demand also weighed on utilities sector funds, which recorded outflows for the fourth time in the past six weeks, and technology sector funds. The latter, which also enjoyed record-setting inflows last year, have lost momentum in recent weeks.
Lost momentum of a different kind helped healthcare/biotechnology and financial sector funds post modest inflows as investors bet that proposed reforms being pushed by US President Barak Obama will emerge from Congress much weakened – or not at all.
Energy sector funds also took in modest amounts of fresh money as some investors looked beyond soft demand forecasts to the summer driving season in the US and the increased long-term demand suggested by recent Chinese domestic car sales.
Angst about the creditworthiness of the Eurozone’s weaker economies had a mixed impact on flows into EPFR Global-tracked bond funds during the week ending 10 February. US and global bond funds continued on their merry way, absorbing another USD2.4bn apiece, and emerging markets bond funds enjoyed their best week since late November. But high yield bond funds saw over USD1bn pulled out as investors decided to cut at least some of their exposure to riskier credits.
The flows into emerging markets bond funds still favoured those funds investing in local currency debt, generally perceived as riskier, but their share of overall inflows continued to slide, dropping to 43 per cent versus over 95 per cent during the fourth week of January.
US bond funds, which have now taken in a net USD12.1bn YTD, saw the lion’s share of this week’s inflows go to funds investing in short term (46 per cent of total inflows), municipal (23 per cent) and intermediate debt (24 per cent).