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US equity and bond funds and EM equity lead inflow party

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Safe haven flows from investors spooked by the latest twist in the Eurozone debt saga saw over USD11 billion flow into EPFR Global-tracked US Equity and Bond Funds during the week ending November 9, with US Money Market Funds absorbing USD23.8 billion despite short term yields in the 0.02% range.

The turmoil surrounding Italy and Greece did, however, highlight the better fundamentals and superior growth prospects of many emerging markets, with China front and centre. China Equity Funds ended the week with their biggest inflow since the third week of 2Q10, BRIC (Brazil, Russia, India and China) Equity Funds snapped an outflow streak that stretched back to mid-April and flows into Asia ex-Japan Equity Funds hit a 20 week high.

Risk appetite, while clearly waning, has yet to sink to mid-August levels. High Yield Bond Funds posted another solid week of inflows, flows into Technology Sector Funds climbed to their highest level in nearly six months and Emerging Europe Equity Funds took in fresh money for the first time in 26 weeks.

Overall, EPFR Global-tracked Equity Funds posted net inflows of USD9.59 billion — a 31 week high — while Bond Funds took in USD4.07 billion. Money Market Funds recorded their biggest since the second week of August, with Europe Money Market Funds having their best week in percentage of assets under management terms since 2Q08.

Flows into the combined Emerging Markets Equity Funds tracked by EPFR Global amounted to USD2.1 billion during the week. It was the fourth straight week of inflows into these funds and the first such inflow streak since May.

The flows, which had favoured the diversified to Global Emerging Markets (GEM) Equity Funds in recent weeks, began to shift towards fund groups with more direct exposure to ChinaAsia ex-Japan, BRIC and China Equity Funds climbed to 20, 32 and 184 week highs respectively while Latin America Equity Funds — whose fortunes are often linked to perceptions of China

Flows into China Equity Funds, which benefited from the news that inflation in the worldBrazil and India Equity Funds both experienced modest net redemptions that took year-to-date outflows to USD1.78 billion and USD3.67 billion respectively. During the same period last year Brazil funds had taken in USD1.47 billion and India funds USD685 million.

EMEA Equity Funds, which has snapped a 25 week outflow streak the previous week, recorded outflows again as the first weekly redemptions from South Africa Equity Funds in 11 weeks and renewed outflows from Turkey Equity Funds offset modest flows into Russia and Emerging Europe Equity Funds.

With ItalyDeveloped Markets Equity Funds during the week ending Nov. 9 favored US Equity Funds to the exclusion of almost every other fund group and sub-group.

Commitments to US Equity Funds climbed to an eight week high of USD7.3 billion, the third largest weekly inflow total this year, as institutional investors steered money into exchange traded funds, with Large Cap ETFs accounting for nearly 80% of the total inflows. YTD, outflows from all Small, Mid and Large Cap Funds stand at USD13.1 billion, USD4.37 billion and USD49.5 billion respectively versus USD3.2 billion, USD467 million and USD54.8 billion during comparable period in 2010. Retail investors continue to keep their distance: they have now pulled money out of US Equity Funds for 18 straight weeks.

Retail aversion to Europe Equity Funds runs even deeper, with the last retail commitments to this fund group occurring during the third week of May. The European Union is facing the prospect of a second recession in three years as austerity measures, the tighter lending standards being applied by regional banks and the uncertainty surrounding the fate of the Eurozone sap consumer and business confidence. The latest weekEurope Regional, France and Switzerland Equity Funds: the USD204 million redeemed from France Equity Funds was an 11 week high.

Money continued flowing out of Japan Equity Funds as a lacklustre corporate earnings season, the downgrade of Diawa Securities Group, the cloud over optics major Olympus Corp. and the impact of flooding in Thailand on corporate supply chains all took their toll.

Both of the major diversified developed markets fund groups again posted outflows, Global Equity Funds for the sixth time in the past seven weeks and Pacific Equity Funds for the 10 consecutive week.

ChinaCommodities and Energy Sector Funds post their biggest inflows in 14 and 36 weeks respectively during the week ending Nov. 9. In the case of the Commodities Sector Funds, it was the first time since the third week of August that non-gold and precious metals made a positive contribution to the overall total.

Technology Sector Funds also had a good week, taking in a 28 week high USD241 million. The commitments came despite mixed earnings, rock bottom DRAM chip prices and disruptions to PC supply chains because of the massive flooding in Thailand.

Some fund groups with more defensive reputations also fared well. Flows into Utilities Sector Funds jumped to a 96 week high, putting this fund group deeper into record setting territory, and Healthcare/Biotechnology Sector Funds posted solid inflows despite redemptions from pure Biotechnology Funds hitting their highest level in nearly three months. YTD, Healthcare/Biotechnology Sector Funds have absorbed a net USD1.51 billion compared to outflows of USD3.76 billion for the same period last year.

Although flows into High Yield Bond Funds exceeded USD1 billion for the fourth week running, flows into EPFR Global-tracked fixed income fund groups had a more defensive flavuor during the week ending 9 November with US Bond Funds accounting for the lion

The USD3.98 billion committed to US Bond Funds was a six week high and was split 40:60 between retail and institutional investors. Flows were broadly based, but two of the major government bond fund classes — Long and Intermediate Term Government Bond Funds — were among the sub groups that experienced outflows.

Outflows from Europe Bond Funds crept up as ItalyGlobal Bond Funds — which have significant exposure to Developed Europe — experienced net redemptions for the seventh time in the past eight weeks. Germany Bond Funds took in fresh money for the first time in five weeks, taking YTD inflows back over the USD2.3 billion mark.
 
Emerging Markets Bond Funds maintained their recent inflow streak, with hard currency funds again the main drivers. Flows into Emerging Markets Corporate Bond Funds did climb to a 14 week high.

Elsewhere, Municipal Bond Funds extended their current inflow streak to 10 consecutive weeks despite the bankruptcy filing by AlabamaMortgage Backed Bond Funds took in fresh money for the 35th consecutive week and flows into Inflation Protected Funds hit an 18 week high.

Balanced Funds, which invest in both bonds and equities, posted modest inflows for the fourth straight week.
 

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