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Outflows from equity and bond funds “but investors are taking on some risk”

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Although overall fund flows during the second week of March remained heavily biased towards redemptions, there was evidence of a modest recovery in risk appetite on the equity side, acc

Although overall fund flows during the second week of March remained heavily biased towards redemptions, there was evidence of a modest recovery in risk appetite on the equity side, according to EDFR.

In the second week of March investors pulled USD9bn out of equity funds and USD385m from bond funds.

EPFR global-tracked commodities, technology and energy sector funds, global emerging markets equity funds and Asia ex-Japan equity funds all recorded inflows while money market funds, a bellwether for investor risk aversion, recorded net outflows of USD381m.

EPFR says it was a hopeful sign for market sentiment that investors pulled cash from their money market funds in three of the four trading days through 11 March, presumably to fund forays into equity markets.

‘Emerging market equity funds have been the more resilient – in flow and performance terms – since the beginning of the year, in part because investors still think their fiscal profiles look a lot better than those of most developed markets,’ says EPFR managing director Brad Durham.

For the fourth week running all of the major EPFR global-tracked equity fund groups geared primarily to developed markets recorded outflows. Japan equity funds were again the biggest loser in percentage terms as weekly redemptions hit a 53-week high while US equity funds posted the biggest outflows in dollar terms for a fifth straight week.

Investors pulled USD456m out of Japan equity funds during the week ending 12 March, taking year-to-date outflows over the USD2bn mark, as Tokyo’s benchmark equities index slid to a 26-year low before rebounding. The country’s balance of trade, meanwhile, posted a new record deficit.

The short-term outlook for Europe also remains bleak, with forecasts for growth slipping further, expectations of a recovery pushed into 2010 and issues of unity as well as growth complicating the jobs of governments operating under the European Union and eurozone umbrellas.

However, outflows from Europe equity funds were again modest as the European Central Bank dropped its key interest rate to a record low of 1.5 per cent on 5 March.

US equity funds, meanwhile, posted their sixth straight week of net outflows with mid cap blend funds again the only sub-group to take in fresh money, according to EPFR. Small and mid-cap funds managed for growth continued to outperform their value counterparts, although flows favoured the latter, but the opposite was true for large cap funds as value trumped growth for the first time in 12 weeks.

EMEA equity funds posted outflows for the 30th time in the past 31 weeks and Latin America equity funds recorded their second straight week of inflows in mid-March. GEM and Asia ex-Japan equity funds posted inflows of USD340m and USD92m respectively.

Funds geared to China and Greater China drove flows into Asia ex-Japan equity funds as investors gave more weight to positive domestic lending figures than to export and industrial production data. Korea equity funds, despite an 11.8 per cent gain for the week, posted outflows of USD74m and investors pulled money out of India equity funds for the eighth consecutive week.

Outflows from Latin America equity funds, meanwhile, were driven by regional funds. Brazil and Mexico equity funds both recorded inflows for the week, with the former fund group’s inflow streak now at seven straight weeks.

Meanwhile, flows into fixed income funds during the second week of March retained their recent defensive pattern with US bond funds taking in another USD1.13bn and all the other major fund groups posting outflows.

Global Bond Funds have now seen money pulled out 53 of the past 55 weeks and emerging markets bond funds 30 of the past 31 weeks.

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