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Equity fund flows hit one year high, says EPFR Global

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Investors responded to a slew of better than expected earnings and macroeconomic data in late July by pumping fresh money into a broad range of asset classes, with 21 of the 24 major eq

Investors responded to a slew of better than expected earnings and macroeconomic data in late July by pumping fresh money into a broad range of asset classes, with 21 of the 24 major equity, fixed income and sector fund groups tracked by EPFR Global posting inflows for the week ending 29 July.

Overall, EPFR Global-tracked equity funds posted collective inflows of USD9.52bn – the highest weekly tally since mid-June, 2008 – while fixed income fund groups (excluding money market funds) took in a net USD4.36bn.

Against a backdrop of rising risk appetite and key equity markets at six to ten month highs, flows into emerging markets bond and US equity funds hit 52 and 32 week highs respectively while Asia ex-Japan equity, high yield and US bond funds all absorbed over USD1bn. At least some of this money came from money market funds, which reported net redemptions of nearly USD18bn for the week as year-to-date outflows from last year’s ‘safe haven’ moved close to the USD200bn mark.

EPFR Global-tracked Asia ex-Japan equity Funds took in another USD1.56bn during the fourth week of July, helped to optimistic comments by Chinese officials as the country’s property markets, domestic consumption and fixed investment show the effects to more than USD1trn in new loans written by Chinese banks during 1H09.

The diversified global emerging markets equity funds posted inflows of USD905m, taking the YTD figure over the USD16bn mark, while EMEA and Latin America equity funds took in USD229m and USD208m respectively.

Funds investing in BRICs markets continue to be money magnets. Flows into India equity funds hit a YTD high of USD211m, dedicated BRIC equity funds took in new money for a 19th straight week, China and Greater China equity funds between them absorbed USD711m and both Russia and Brazil equity funds posted inflows in excess of USD100m.

Funds investing in the so-called frontier markets also fared well. Vietnam equity funds enjoyed their second best week YTD, absorbing a net USD17m, and Africa regional funds took in fresh money for the ninth time in the past 12 weeks.

The combination of a better than expected 2Q09 corporate earnings season and the first overall month-on-month rise in house prices since 3Q06 helped EPFR Global-tracked US equity funds snap a six week outflow streak as this fund group enjoyed its biggest weekly inflow since mid-December. US large cap equity funds attracted more than half the new money as funds managed for Value outperformed their Growth counterparts across all capitalizations.

Optimism about US prospects also translated into another week of inflows for Japan equity funds, their fifth in a row, as investors tuned out the political noise created by embattled Prime Minister Taro Aso‚s decision to call a general election on 30 August. The latest polls suggest that election will result in a victory for the opposition DPJ, whose campaign platform promises to shift resources from infrastructure projects to fund tax cuts and subsidies for individual households.

Europe equity funds also eked out modest inflows as investors penciled in a better global climate for the region’s exporters. Regional funds with exposure to the UK did better than their ex-UK peers.

For the second week running, both the major diversified fund groups investing primarily in developed markets both posted inflow. Global equity funds took in a net USD821m while Pacific equity funds absorbed another USD98m which took YTD inflows past USD1bn.

Signs of light in the US housing market allowed investors to project increased consumption by US consumers in the months ahead and trim expectations of property-related write downs by lenders. EPFR Global-tracked financial, technology, consumer goods and real estate eector funds posted inflows of USD722m, USD323m, USD186m and USD150m respectively during the week ending 29 July.

Also taking in fresh money were commodity sector funds, which saw YTD inflows cross the USD6.5bn mark as investors responded to predictions off dollar weakness and higher copper prices, and healthcare/biotechnology sector funds which benefited from the perception that the ongoing swine flu epidemic will increase demand.

The only two sector fund groups to record outflows for the week were energy sector funds, hit by corporate forecasts of continued soft demand, and telecom sector funds.

The four major EPFR Global-tracked bond fund groups enjoyed another strong week in late July. High yield bond funds had their second best week ever, global and emerging markets bond funds both extended their inflow streaks to 16 straight weeks and US bond funds absorbed over USD1bn for the 19th time in the past 21 weeks as YTD inflows for this fund group topped the USD36bn mark.

Balanced funds also posted solid inflows. The USD505m they absorbed was a 16 week high and extended their current winning streak to 17 weeks and USD4.17bn.

With the spread between US Treasuries and JP Morgan’s benchmark EMBI+ index falling to a ten-month low of 381 basis points, flows into emerging markets bond funds specializing in local currency debt climbed to a 53-week high of USD309m. Flows into US bond funds, meanwhile, remain biased toward those with a municipal debt or inflation protection mandate, reflecting concerns that current stimulus spending will translate into higher taxes and inflation once a recovery takes hold. US municipal and inflation protected bond funds took in USD917m and USD223m respectively, accounting for over two-thirds of all flows into this fund group.

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