EPFR Global-tracked bond funds out-gained their equity fund counterparts by the widest margin since late October during the third week of April as a mixed earnings season, weak macroeconomic data and concerns about the impact of Japan’s current monetary policy on emerging markets export stories curbed investor appetite for equities.
The latest bout of uncertainty did not, however, curb their hunger for yield with dividend equity funds posting their second biggest inflow year-to-date and flows into high yield bond funds hitting a seven week high.
Overall, bond funds took in a net USD7.58bn – a 23 week high – as they extended an inflow streak stretching back to late December while equity funds recorded net redemptions of USD3.73bn, their first outflow since the third week of November. Investors pulled USD9.27bn out of money market funds with Europe money market funds accounting for over half of that total.
Policy, growth and weak yen concerns saw another USD2.1bn flow out of EPFR Global-tracked emerging markets equity funds during the week ending April 24. Asia ex-Japan equity funds bore the brunt of the week’s redemptions. China equity funds posted outflows for the ninth straight week, a run that has seen over USD3.8bn pulled out of these funds, and Greater China equity funds experienced net redemptions for the fourth time in the past five weeks. Funds dedicated to Indonesia, which is seen as a likely destination for Japanese capital flows while being less dependent on exports, continues to swim against the tide.
Yen-denominated flows accounted for over half the money taken in by Japan equity funds during the week, which is in keeping with reports that Japanese investors are selling foreign investments to capture currency profits and bringing the money back home to take advantage of the jump they expect in domestic equity prices thanks to the Bank of Japan’s aggressive easing policies. YTD, Japan Equity Funds have taken in nearly three times the amount they absorbed during all of 2012 and are within striking distance of the full year inflow record set in 2005.
Although a cheap yen poses a threat to Europe’s export story, investors appear to be betting this will force policymakers to cut interest rates even further and relax the relatively tight fiscal policies being pursued in many countries. Europe equity funds did post outflows for the eighth week in a row, but net redemptions were the lowest since that run started. Italy and Spain equity funds, meanwhile, posted strong inflows – with the latter group posting its biggest weekly total in over a decade – as investors focused on markets likely to show the biggest response to more accommodative policies.
It was a better week for energy sector funds, which turned in by far the best performance among the 11 major sector fund groups tracked by EPFR Global. Funds focused on oil recorded their biggest weekly inflow since mid-1Q12 as some investors acted on the perception that crude oil prices are at or close to their low point for the year.
EPFR Global-tracked floating rate, high yield and total return bond funds all pulled in over USD1bn during the third week of April as fixed income investors stepped up their search for better returns and some equity investors sought shelter. Global and US bond funds both recorded their biggest inflows in 24 weeks and flows into Europe bond funds hit YTD highs.