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US Equity Funds hit hardest ahead of Fed’s September meeting

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The week before the US Federal Reserve's much anticipated September meeting saw the fund flow pendulum swing back into the red with US and Emerging Markets Equity Funds accounting for the bulk of the redemptions.

Overall, EPFR Global-tracked Equity Funds posted collective outflows of USD18.7 billion during the week ending Sept. 9 versus a USD284 million outflow for Bond Funds and a USD365 million inflow for Money Market Funds that was underpinned by commitments to funds with European mandates. Flows remained positive for Europe and Japan Equity Funds and US Bond Funds recorded back-to-back weekly inflows for the first time since mid-July.
 
Fixed income flow data for the week suggests that the earlier consensus about a September hike in US interest rates continues to erode Redemptions from High Yield and Emerging Markets Bond Funds dropped to four and five week lows respectively while Bank Loan Funds, traditionally a vehicle for playing rising interest rates, posted outflows for sixth straight week.
 
At the country level India Equity Funds extended their longest outflow streak since 1Q14, BRIC Equity Funds snapped a run of redemptions stretching back to the second week of April and Italy Equity Funds attracted fresh money for the seventh week running.
 
With the next meeting of the US Federal Reserve looming, China continuing to pump out mixed economic data and Brazil's credit rating from Standard & Poor's falling into junk territory, money kept flowing out of EPFR Global-tracked Emerging Markets Equity Funds during the first full week of September. Since mid-July investors have pulled over USD40 billion from this fund group, exceeding the pace of redemptions seen during the so-called "taper tantrum" in 2013.
 
The bulk of the week's outflows came from Asia ex-Japan and the diversified Global Emerging Markets (GEM) Equity Funds. In the case of Asia ex-Japan Equity Funds, those with regional mandates again experienced the biggest withdrawals while outflows from dedicated China Equity Funds dropped to their lowest level since early August as the country's economic policymakers continue to roll out new stimulus measures to combat slowing growth and the risk of deflation. Elsewhere, Taiwan Equity Funds recorded outflows for the 10th straight week as some investors focus on the commanding lead in the polls the less China-friendly presidential candidate has ahead of next January's election.
 
Brazil's latest downgrade was widely expected, given the deterioration of the country's public finances and the weak performance of its economy. But Brazil Equity Funds posted outflows for the seventh time in the past nine weeks with real-denominated withdrawals accounting for roughly half the week's net redemptions.
 
The latest blow to Brazil did not add – at least for now – to the headwinds facing dedicated BRIC (Brazil, Russia, India and China) Equity Funds which posted inflows for only the second time year-to-date and ninth time since the beginning of 2014.
 
The first full week of September saw EPFR Global-tracked Developed Markets Equity Funds post outflows overall as modest commitments to Japan and Europe Equity Funds were offset by the biggest redemptions from US Equity Funds since investors pulled out some USD30 billion the penultimate week of 4Q14.
 

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