Institutional redemptions from EPFR Global-tracked US equity funds and commitments to US bond funds both set new records in dollar terms going into February.
This came as markets around the world continued to struggle with the shift in US monetary policy, China’s slower growth and the cautious tone of the latest corporate earnings forecasts.
This ‘mini-rotation’ by institutional investors between US-dedicated fund groups underpinned a new inflow record for all bond funds and a new outflow record for all equity funds during the week ending 5 February.
Collective outflows from all equity funds totalled USD28.3bn, with emerging markets equity funds accounting for a fifth of that total, while a net USD14.7bn flowed into bond funds.
When measured in percentage of assets under management terms the flows into bond funds were the biggest since early 2Q10 and the redemptions from equity funds the largest since mid-3Q10. Institutional commitments to all bond funds, in these terms, hit levels last seen in 1Q06.
Despite the big overall outflow for equity funds there were some bright spots. Flows into gold and Japan equity funds jumped to 19 and 36 week highs respectively while Turkey equity funds took in fresh money for the seventh straight week. On the fixed income side Europe bond funds posted their biggest inflows since late April and global bond funds since the third week of July.
While dollars were flowing out of US equity funds yen where flowing into Japan equity funds which recorded their biggest inflow since mid-2Q13. These capital flows proved a mixed blessing, as the support they provide for Japan’s currency was translated by overseas investors are a strike against major export plays. Year-to-date Japan equity funds are the worst performers among the major developed markets equity fund groups – and second only to Latin America equity funds among the major EM groups – with the average fund down over eight per cent.
Among the better performers YTD are four of the five Europe equity country fund groups dedicated to the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) markets. Greece equity funds were up nearly seven per cent going into the second week of February while Portugal, Italy and Ireland equity funds were up between 2.1 per cent and 3.2 per cent. Spain equity funds, which are second only to UK equity funds among the country fund groups when it comes to attracting fresh money, have seen performance lag in part because of the perceived exposure of Spanish companies to Latin America.
Flows into EPFR Global-tracked bond funds surged during the week as US Government bond funds attracting strong institutional commitments. Investors continued to pull out of emerging and Asia Pacific bond funds and pulled another USD1.2bn out of high yield bond funds as they adjusted their exposure to account for the likely impact of the US Federal Reserve’s tapering of QE3. There remains little or no appetite for inflation protected debt, with EPFR Global-tracked inflation protected bond funds having posted inflows only twice since the start of the second quarter last year. But total return bond funds attracted over USD800m, mortgage backed bond funds had their best week in over nine months and municipal bond funds extended their longest inflow streak since last May.