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Fund flows flashing green for Europe equity, US junk bonds and healthcare in late July

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Flows into EPFR Global-tracked funds during the week ending 24 July highlighted investor faith in the US recovery and their growing conviction that this Europe’s battered economy is finally on the mend.

 
Retail commitments to US equity funds hit a level last seen in 3Q09 and US high yield bond funds posted their second biggest weekly inflow on record while combined flows into the two major Europe regional equity fund groups were the biggest since mid-December.
 
The week also saw investors respond to the improved prospects for structural reform in Japan and signals from China’s government that its willingness to trade growth for reform stops at a point north of seven per cent. Asia ex-Japan equity funds snapped a nine week outflow streak, Japan equity funds posted inflows for the 27th straight week and flows into Japan equity funds were the highest since the second week of January.
 
Overall, EPFR Global-tracked Bond Funds took in a nine week high of USD4.36bn while equity funds absorbed USD8bn. Money market funds saw USD12bn redeemed with US funds accounting for over 90 per cent of that total.
 
Fixed income investors continued to keep their distance from funds dedicated to emerging markets, inflation protected and municipal debt. But floating rate bond funds posted a new weekly inflow record, their sixth year-to-date.
 
Optimism about the US cyclical recovery helped Korea equity funds post inflows for the sixth straight week, their best run since 2Q11, despite lingering concerns about the impact of a weaker Japanese currency on their export story. But flows into most of the other emerging Asian country fund groups were subdued as investors weighed comments by Chinese leaders defending current GDP targets against fresh evidence of weakness in the country’s manufacturing sector.
 
On the heels of the previous week’s record setting inflows US equity funds took in a more modest USD4.13bn with retail commitments accounting for almost half of that total and flows into actively managed funds hitting their highest level in over a decade. Funds with mid-cap mandates attracted the most money during a week when funds with a value style handily outperformed their growth counterparts across all capitalisations.
 
Although a cyclical US recovery usually benefits its northern neighbour, investors are showing little appetite for Canada equity funds which have posted outflows eight of the past 10 weeks and have seen over USD8.5bn redeemed YTD.
 
Flows into most EPFR Global-tracked sector fund groups slowed during the week ending July 24, with most investors already positioned for the ongoing 2Q13 corporate earnings season. The two exceptions were financial and healthcare sector funds, both of which absorbed over USD750m, with the latter posting their biggest weekly inflow on record. In the case of healthcare/biotechnology sector funds are following performance, with that fund group now sitting on a YTD portfolio gain of over 28 per cent. Pure biotechnology funds have also been doing well: inflows during the latest week were the second largest YTD.
 
The commitments to floating rate bond funds – commonly referred to as leveraged loan funds – were the biggest on record and took YTD inflows past the USD40bn mark. This asset class is one of the few for whom rising interest rates are a plus. But, given the appetite for exposure to junk bonds, fears of a sharp hike in the cost of capital – especially in the US – are receding. Investors, who committed a record setting amount to US high yield bond funds during the week, are also more confident that the strength of the US economy will offset the impact of high rates.

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