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Monetary policymakers set the table for autumn flows action

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Two weeks into September investors and markets had, on the face of it, been given much of what they had been hoping for and expecting: a bond buying programme from the European Central Bank, ratification of the European Stability Mechanism by Germany’s Constitutional Court and additional mortgage backed bond purchases by the US Federal Reserve.



Flows into EPFR Global-tracked funds during the second week of September reflected these developments, with all equity funds absorbing a 65 week high of USD12.1bn and bond funds, driven by higher yielding fund groups, posting their biggest inflow since the first week of May.

Among the major fund groups that benefited were Europe equity, emerging market bond and global equity funds, which saw inflows hit 18, 31 and 41 week highs respectively during the week ending September 12, and commodities sector funds which absorbed over USD1.7bn.

The euphoria bypassed some fund groups. Japan, Pacific and emerging market equity funds experienced weak or negative flows as investors continued to digest recent trade data. Retail investors were slow to join the party, pulling money out of Europe, US, Japan, Pacific and global equity funds.

One equity fund group that retail investors did warm to was emerging market equity funds. They attracted retail money for the first time since late February as the prospect of stimulus measures in the US, Europe and China bolstered the case for this asset class. But overall flows were subdued, and in the case of EMEA equity funds negative to the tune of USD170m.

With China fleshing out proposals to boost its economy by way of infrastructure projects, Asia ex-Japan equity funds rebounded from the big outflows they recorded in early September to post modest inflows. While China equity funds enjoyed their second best week since mid-february most of the other dedicated emerging Asia country fund groups struggled to attract money in the face of poor export data for July and early August.

China’s plans rekindled enthusiasm for Latin America and Brazil equity funds, with flows into both fund groups hitting a 12 week high. But they failed to light any fires under dedicated BRIC (Brazil, Russia, India and China) equity funds which recorded their 27th consecutive week of net inflow. Frontier market funds, however, had their best week since early April.

Outflows from EMEA equity funds were driven by a shift in sentiment towards Russia, with Russia Equity Funds recording their biggest outflow since mid-May as growth in the BRIC market slows and inflation remains at or above the top end of the central bank’s target.

Enthusiasm for several EPFR Global-tracked developed market equity fund groups soared during the second week of September as the expectations of monetary stimulus in Europe and the US were met by the ECB and US Federal Reserve. US equity funds took in over USD9bn, flows into global equity funds hit a nine month high and Europe equity funds posted their biggest inflow since early May.

Sector funds continued to reflect the prospect of additional monetary stimulus on both sides of the Atlantic during the second week of September, with flows into commodities sector funds hitting a 32-week high and energy, financials, real estate and industrial sector funds all posting solid inflows.

Gold and precious metals funds accounted for USD924m of the USD1.8bn absorbed by all commodities sector funds as investors continued to broaden their exposure to this asset class.

Financial and real estate sector funds again benefited from the prospect of additional quantitative easing, with the former extending their longest inflow streak since 1Q11.

There was no let-up in the search for yield during the week ending September 12 as policy shifts pointed to a further squeeze on the returns offered by issuers perceived as safe. YTD flows into high yield bond funds moved within striking distance of the USD56bn mark and emerging market bond funds posted their biggest weekly inflow since early February while total return, mortgage backed and municipal bond funds all took in over USD400m.

In this climate investor appetite for US government debt remained subdued, with both short and intermediate US government bond funds posting outflows during a week when US high yield, municipal and mortgage backed funds accounted for 55 per cent of the flows into all US bond funds.
 

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