Worries about the weakness of global economic growth kept the pressure on most fund groups during the third week of August as investors reassessed the ability of governments and corporations to service their debts in the face of weaker earnings and tax receipts, the willingness of consumers to keep spending and the outlook for exporters.
Although key equity markets rebounded for much of the week, 19 of the 25 major equity, bond and sector fund groups tracked by EPFR Global posted outflows. Investors pulled over USD2 billion out of High Yield Bond and Commodities Sector Funds, redeemed record-setting amounts from Healthcare/Biotechnology Sector and Floating Rate Funds and continued cutting their exposure to Asian exporters.
"One theme that is holding up is appetite for dividend paying equities," said EPFR Global Director of Research Cameron Brandt. "Recently the flows have been more along sector than country lines, but so far this year equity funds with a dividend focus have pulled in nearly USD13 billion versus collective outflows for all the equity funds we track of over USD45 billion."
Investors did rediscover their appetite for exposure to German, Canadian and Swiss equities and put more money into Mortgage Backed Bond and Balanced Funds. Overall, EPFR Global-tracked Bond Funds recorded net redemptions of USD4.1 billion. Equity Funds surrendered USD5.81 billion, less than a quarter of the previous week
Outflows from Emerging Markets Equity Funds slowed during the week ending August 17 but still came in at USD2.77 billion, with Asia ex-Japan Equity Funds accounting for over half of that total as investors turned sour on the regionGlobal Emerging Markets (GEM) Equity Funds also posted outflows as the YTD total for these funds moved back over the USD23 billion mark.
The redemptions from Asia ex-Japan Equity Funds were broadly based, with Thailand, Indonesia and Philippine Equity Funds the only sub-groups to attract fresh money, as doubts about Chinese growth and US appetite for imports weighed on sentiment towards the region. This was especially true for markets whose export stories have a big technology component: outflows from Korea and Taiwan Equity Funds hit their highest weekly levels since 1Q09 and prior to 4Q00 respectively.
EMEA Equity Funds extended their current outflow streak to 15 straight weeks as civil unrest and weaker oil prices, the ongoing Eurozone crisis and the softening outlook for commodities hit Middle East and Africa (MEA) Regional, Emerging Europe Regional and Russia Equity Funds. Outflows from MEA funds accelerated to a 20 week high as the conflicts in Libya and Syria grabbed more of the headlines.
Among the Latin American sub groups Brazil Equity Funds posted outflows for the fifth time in the past six weeks as faith in the ability of new President Dilma RousseffMexico Equity Funds posted modest inflows despite concerns about the impact of weaker US growth on demand for Mexican exports.
As the dust settled from the previous weekGermany Equity Funds took in over USDUSD1 billion, flows into Canada Equity Funds hit a 20 week high and Switzerland Equity Funds enjoyed their best week since early 4Q10. US Equity Funds, meanwhile, posted outflows for the fifth straight week — their longest losing run since January, 2010 — and redemptions from Japan Equity Funds climbed to an eight week high.
"At least in the developed markets space investors are heeding the old dictum that, in tough times, you invest in the creditor, not the debtor," observed EPFR Global Managing Director Brad Durham.
EuropeGermany Equity Funds stand at USD17.16 billion. Institutional investors again accounted for the bulk of the new money while their retail counterparts continued their exodus from regional funds.
US Equity Funds experienced modest outflows as redemptions from US ETFs more than offset the first week of flows into actively managed funds since mid-May and the first week of retail commitments since mid-July. "The latest data doesn
That data does little to support the idea of increased US demand for Japanese exports, an issue compounded by the yenJapan Equity Funds as the race to succeed unpopular Prime Minister Naoto Kan heated up. Kan is expected to go before the end of the third quarter, which is prompting some investors to pull back despite the anticipated post-tsunami rebound until the shape and policies of the next administration become clearer.
Global Equity Funds posted their first inflows since early July. The other major diversified developed markets fund group, Pacific Equity Funds, recorded outflows for the sixth consecutive week.
The dividend riches and perceived defensive qualities offered by Utilities Sector Funds attracted over USD450 million in fresh commitments during the third week of August, making it the standout among the nine major global sector fund groups tracked by EPFR Global. The inflow was the biggest since the second week of December, 2009, and puts this fund group on track to eclipse its full year inflow record set in 2006.
It was also a rough week for Healthcare/Biotechnology Funds, which suffered their biggest weekly outflow since they were first tracked in 1Q02, as well as Consumer Goods and Technology Sector Funds. Pure biotechnology funds accounted for less than a quarter of the Healthcare/Biotechnology Sector Fund outflows, with investors focusing more of the likelihood cash strapped governments will look to further squeeze reimbursement rates for publicly funded care.
Financial Sector Funds remained under pressure from a mixed earnings season and news that one major bank had availed itself of the European Central Bank
Most of the major EPFR Global-tracked bond fund groups continued to struggle in mid-August as investors digested the implications of slower global growth, recent sovereign downgrades, the latest chapter in the Eurozone debt saga and the US Federal ReserveEmerging Markets Local Currency and Mortgage Backed Bond Funds were among the few sub groups to swim against the tide.
High Yield Bond Funds again topped the list when it came to redemptions, although the pace was a third of the previous weekFloating Rate Funds which had their worst week on record in dollar terms and worst in percentage of assets under management terms since 1Q08.
Emerging Markets Bond Funds posted back-to-back weeks of outflows for the first time since February. But funds with local currency mandates extended an inflow streak stretching back to the third week of March. Actively managed funds still dominate this space but ETFs are beginning to enlarge their share: since the beginning of the year the assets under management in EFS have grown 43% versus 33% for non-ETFs.
Among the fund groups focusing on developed markets Europe Bond Funds posted modest outflows that took the YTD total past the USD19 billion mark while US Bond Funds saw flows into Short Term, Long Term Corporate and Mortgage Backed Funds eclipsed by outflows from Floating Rate, Municipal and Intermediate Funds.
Flows into Mortgage Backed Funds have now been positive for 23 straight weeks, with most of the money flowing into US domiciled funds. Demand has held up despite big sales of bonds acquired by the US Treasury at the height of the crisis. Relatively high yields and the implicit government guarantee have helped this asset class shine in recent months.
