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Real estate sector funds see another USD179 m of inflows

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Real estate sector funds took in another USD179m of inflows during the week ending 3 February, replacing energy sector funds as the year-to-date inflow leader among commodity funds, according to EPFR Global.

Investors had plenty of reasons for caution going into February as corporations continued to paint a gloomy picture for earnings in 2010, Greece’s debt story went from bad to worse and policymakers began to flesh out their ideas for closing yawning budget deficits.

Outflows from emerging market equity funds were the worst in 24 weeks as US and global bond funds again absorbed the bulk of the fresh money committed by investors.

Despite the uncertainty about the strength of the global recovery, and any impact on asset values, another USD9.1bn was redeemed from money market funds.

“The fact investors have pulled nearly USD80bn out of this fund group during the first month of the year suggests the desire to put money to work rather than simply keep it on the sidelines,” says senior analyst Cameron Brandt.

Based on the most recent flows data, investors are seeing value again in Europe, Taiwan, Chile and US large cap equities, financial plays and high yield debt following the broad sell-off in late January.

Flows into Europe equity funds hit a nine-week high, Chile equity funds again attracted more money than their Brazil counterparts and financial sector funds had their best week since mid-December.

Overall, bond funds tracked weekly by EPFR Global with USD1.1trn in assets attracted another USD4.6bn of net inflows while the equity funds, with USD3.1trn in assets, suffered outflows of USD981m.

With risk aversion on the rise, fund groups investing in the bigger developed markets – or the bigger firms within those markets – saw some fresh money come their way during the week ending 3 February. Europe, Japan, global and US large cap funds all posted inflows, although Pacific funds did experience their biggest weekly outflow since early 4Q08.

Flows into Europe equity funds, which absorbed a net USD861m, were spearheaded by UK, France and Germany equity funds. The latter two, and Europe ex-UK regional funds, benefited from the euro’s decline versus the US dollar which should improve the competitiveness of key export plays.

Currency strength was not a factor for Japan equity funds, which managed to extend their inflow streak to a sixth straight week as investors shrugged off Toyota’s massive recalls, signs that deflation is strengthening its grip on Japan’s domestic economy and fresh warnings from ratings agencies about the unchecked growth of the country’s public debt.

Flows into US equity funds, meanwhile, decisively favoured those investing in large cap stocks and some sectors as investors digested mixed economic data and President Obama’s budget, which calls for higher taxes on some sectors and those in the higher tax brackets.

Global equity funds absorbed a modest USD61m for the week while Pacific equity funds posted outflows.

All emerging market equity funds tracked saw their second straight week of outflows, totalling USD1.6bn. Outflows from global emerging markets equity funds hit a 59-week high in early February as investors reassessed the potential demand from developed markets for commodity and other exports during 2010.

In addition to pulling nearly USD1bn out of this fund group, investors also removed USD516 m from Asia ex-Japan equity funds. Latin America funds also saw modest outflows. The pressure on Asia ex-Japan equity funds was compounded by the diplomatic row between the US and China sparked by the former’s announcement of plans to sell more arms to Taiwan, a move that raised the specter of trade disputes and sanctions.

China equity funds posted outflows for the fifth time in the past six weeks. But Taiwan equity funds had their best week since early June while fresh evidence that India’s growth rate is picking up steam was greeted by net withdrawals of USD180 m – the most in 68 weeks – from India equity funds.

Interest in another potentially oversold region, emerging Europe, helped EMEA equity funds post modest inflows for the week. Emerging Europe equity funds absorbed USD64m, and Africa regional funds extended their current inflow streak to 22 consecutive weeks.

Commodity funds are out of favour now that investors have pulled money from them for five straight weeks, but there appears to be some growing confidence in a commercial real estate recovery.

Real estate sector funds, which took in another USD179m of inflows during the week, replaced energy sector funds as the year-to-date inflow leader. And with reform of the US healthcare system losing impetus and fears of a bubble in biotechnology stocks receding, healthcare/biotechnology sector funds absorbed a 10-week high of USD239m.

Financial sector funds, which posted their largest outflow since early 4Q08 the previous week, took in USD423m for the week in spite of fresh proposals to increase taxes on 0 and the regulation of – US banks. Technology sector funds rebounded from their worst week in over 16 months to record inflows and consumer goods sector funds offset nearly all of the outflows they recorded the previous week.

Commodity and energy sector funds continued to suffer from the doubts about US, Chinese and European demand in the months ahead. Commodity sector funds extended their current outflow streak to five straight weeks and USD816m, while investors also pulled back from energy sector funds. Doubts about industrial demand also weighed on utilities sector funds.

The growing concern over indebtedness in the US, Japan and smaller Eurozone nations did not stop investors from committing another USD2.25bn to US bond funds in early February, thereby extending their inflow streak to 57 straight weeks, and steering another USD1.62bn into global bond funds. With the spread between US Treasuries and JP Morgan’s benchmark EMBI+ index dropping back to the 300 basis points level, emerging markets bond funds attracted another USD406m, although flows into funds investing in riskier local currency debt fell to around half the total inflows compared to over 95 per cent the previous week.

High yield bond funds bounced back from the previous week’s outflows, taking in USD335m as central banks around the world showed an inclination to keep interest rates on hold in the face of mixed economic data, suggesting that refinancing costs for issuers of this debt will not become crippling any time soon.

Flows into US bond funds, meanwhile, favoured funds investing in short term, intermediate and inflation protected debt. Balanced funds, which invest in both equity and bonds, posted their ninth consecutive week of inflows.

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