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Investors allocate money to developed market equity and bonds

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EPFR Global-tracked global bond funds, emerging markets bonds, real estate sector funds and global equity funds posted their biggest inflows year-to-date during the week ending 17 September.

Meanwhile, EMEA equity funds took in fresh money for the ninth straight week, Japan equity funds for the 12th time in 13 weeks and Europe equity funds for the eighth time in the past nine weeks.

Some of the latest flows were absorbed by this year’s established winners, with US bond funds absorbing over USD2bn for the seventh straight week, commodity sector funds enjoying their best week YTD and balanced funds running their current inflow streak to 24 straight weeks.

Overall, investors pulled USD47.2bn out of money market funds during the second full week of September. It was the second biggest weekly outflow this year and brings total year to date outflows to a staggering USD331.9bn, or a little more than ten per cent of their assets.

Some of the money pulled off the sidelines by investors this week was earmarked for US quarterly tax payments, with USD5.5bn going into other fixed income fund groups and USD3.7bn into equity funds. 

With a re-rating of Europe ‘s financial sector giving regional valuations a fresh shine and signs of recovery in the US bolstering the outlook for exporters, Europe equity funds absorbed another USD1.2bn during the week ending 16 September.

Another market inspiring more confidence is Japan, which is benefiting from the hopes of a shake up by the new government and from projections of increased US and Chinese demand for its exports. Although YTD outflows still total over USD2.6bn, Japan equity funds have posted net inflows of USD1.18bn since the last week of June, with investors committing another USD153m during the past week.

The improvement in US data again did little to help US equity funds, with many investors still feeling that valuations are high given the current unemployment levels, the average gap between operating and reported earnings and the waning of several key stimulus measures. Mid cap ETFs, US sector funds and actively managed large cap growth funds did attract some fresh money, narrowly offsetting outflows from large cap blend ETFs, as funds managed for value outperforming their growth counterparts across all capitalizations for the first time since late August.

The two major diversified fund groups investing primarily to developed markets both recorded inflows for the second week running, with global equity funds absorbing USD1.74bn for the week while Pacific equity funds took in USD128m.

Some more encouraging production and capacity utilization data from the US provided a boost of commodity and energy producing regions in mid-September, with global emerging markets, EMEA and Latin America equity funds taking in USD299m, USD209m and USD168m respectively for the week ending 16 September.

But funds with Asian mandates were hit by profit taking and by the unease generated by US-Chinese trade tensions. With the US imposing fresh levies on Chinese tire exports and China threatening to retaliate, China equity funds saw USD477m redeemed as investors rotated their Asian exposure to India and Korea.

The improved sentiment towards the Eurozone, allied to the benefits accruing to Russia from higher oil, gold and other commodity prices, helped emerging Europe regional and EMEA equity funds continue their third quarter rebound. The former, which started the year with a 13 week, USD786m outflow streak have now taken in over USD400m during the past nine weeks.

Russia equity funds took in a seven week high of USD99m but flows into BRIC equity funds, which averaged USD145m a week between late March and early August, remained subdued.

With renewed US  growth, inflation and dollar weakness back on investors‚ radar screens, commodity sector funds absorbed over USD1bn for the first time since EPFR Global started tracking them in 1Q06, pushing YTD inflows over the USD9bn mark. ETFs again dominated the list of funds attracting fresh money.

The week’s other big winners were real estate sector funds. Helped by better data and speculation that the US will extended its tax break for first-time homebuyers, these funds absorbed a 135-week high of USD925m.

With many bank balance sheets closely attuned to the health of real estate markets, financial sector funds pulled in another USD299m as YTD outflows, which stood at USD1.9bn in late July, dropped below USD600m.

The prospect of stronger growth also boosted energy sector funds, which absorbed USD377m for the week, and helped technology sector funds attract USD214m. But healthcare/biotechnology funds continued to suffer from their defensive nature and the uncertainty surround the debate over US healthcare reform, posting outflows for the sixth time in the past seven weeks.

Flows into EPFR Global-tracked emerging markets bond funds surged to an 87-week high of USD540m in mid-September, pulling YTD flows into positive territory for the first time since early January, as the spread between the EMBI+ index and US Treasuries dropped to around 310 basis points. US bond funds and global bond funds also had strong weeks, attracting USD2.79bn and USD1.62bn respectively, as investors continue to gravitate towards an asset class viewed as safer and less volatile than equities. US bond funds have now taken in fresh money every week YTD while the current inflow streak for global bond funds now stands at 23 straight weeks.

High yield bond funds also extended their latest winning run to 12 straight weeks, but inflows were again half the weekly average these funds maintained through late August. Money market funds, meanwhile, have now seen over three quarters of the money that flowed in during 2008 flow back out, with YTD outflows now standing at USD332bn.

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