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Yield remains a guiding light in the gloom

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Flows into EPFR Global-tracked high yield bond funds exceeded USD2bn for the sixth time in the 30 weeks year-to-date, municipal bond funds took in over USD800m and dividend equity funds absorbed a net USD858m during a week when outflows from all equity funds exceeded USD10bn.



In their search for better than average returns investors bypassed exposure to sectors – 10 of the 11 major EPFR Global-tracked Sector Fund groups posted outflows – but showed a willingness to look at country-specific equity funds.

Overall, bond funds posted inflows for the week of USD3.7bn while equity funds saw outflows of USD10.7bn. Money market funds absorbed USD7.9bn. YTD bond funds have taken in USD223.2bn and equity funds surrendered USD31.4bn versus an inflow of USD115.2bn and an outflow of USD4.4bn during the comparable period last year.

EPFR Global-tracked emerging market equity funds posted modest outflows for the second week running as retail investors’ redemption streak hit 21 consecutive weeks. Latin America and the diversified global emerging markets equity funds attracted some fresh money that was more than offset by outflows from EMEA and Asia ex-Japan equity funds.

In the case of Asia ex-Japan equity funds, which have experienced net redemptions 12 of the past 13 weeks, purely regional funds suffered from concerns that slowing US and European growth will cut into their demand for regional exports. But some country-specific fund groups fared quite well with China equity funds posting their biggest weekly inflow since mid-February, Taiwan equity funds snapping a two week outflow streak and India equity funds recording inflows for only the third time since the first week of March.

EMEA equity funds, meanwhile, were again buffeted by the usual headwinds: weak commodity prices, the Eurozone debt crisis and the political tensions in the Middle East. Russia equity funds posted outflows for the 13th time in the past 14 weeks, redemptions from emerging Europe regional equity funds hit an eight week high and South Africa equity funds saw the biggest outflows since late 4Q07.

The main emerging markets themes also continue to struggle. Dedicated BRIC (Brazil, Russia, India and China) equity funds saw their current outflow streak hit 20 straight weeks, investors pulled money out of frontier equity funds for the 13th straight week and funds under the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa) umbrella posting outflows for the ninth time in the past 10 weeks.

Redemptions from EPFR Global-tracked developed market equity funds hit a YTD high during the week ending July 25 as investors digested the gloomy outlooks attached to many earnings reports and watched Spanish bond yields climb. All five of the major fund groups recorded outflows during the week ranging from USD81m for Pacific equity funds to USD8.9bn for US equity funds.

The outflow from US Equity Funds – a 35 week high – was again driven by a handful of large and small cap ETFs. Redemptions from actively managed funds totalled a modest USD267m, with non-ETF large cap growth funds extending their current inflow streak to seven weeks and USD2.8bn, and US dividend equity funds took in a net USD702m.

Europe equity funds recorded outflows for the third straight week. But institutional investors remain optimistic that the unrelenting stream of bad-to-dire macroeconomic data will force European policymakers to finally do what is needed to arrest the three-year old debt crisis. While retail redemptions climbed to a five week high, institutional investors committed money to these funds for the fifth time in the past six weeks.

With the Bank of Japan seemingly back on the sidelines, institutional flows to Japan equity funds have been negative three of the past four weeks. Overall redemptions from these funds hit a 16 week high as some early 2Q12 earnings reports confirmed the competitive drag exerted by a strong yen.

Investors pulled money out of both major diversified developed market equity fund groups, ending inflow steaks of two weeks for global bond funds and four weeks for Pacific equity funds.

Real estate sector funds continued to defy gravity, posting inflows during a week when the other 10 EPFR Global-tracked sector fund groups posted outflows ranging from USD16m to USD826m. The latest inflows pushed this fund group to the top of the list in terms of attracting fresh money YTD, with commodities sector funds slipped back into second place.

Both energy and commodities sector funds saw over USD800m pulled out as the outlook for global economic growth continued to cool. Commodities sector funds were also hobbled by the flat performance of gold in recent weeks, with gold and precious metals funds seeing their biggest collective outflow in nine weeks.

Elsewhere, technology sector funds saw retail investors redeem money for the 14th straight week ahead of bellwether Apple’s disappointing 2Q12 earnings report. Financial sector funds recorded outflows that were kept in check by expectations of further government support for the sector via interest rate cuts or quantitative easing.

Yield remained the lodestar for fixed income investors going into the final week of July. EPFR Global-tracked high yield bond funds saw their current inflow streak hit seven weeks and USD11.6bn, YTD flows into municipal bond funds pushed through the USD30bn level and mortgage backed bond funds recorded inflows for the 71st straight week. Emerging market bond funds took in fresh money for the seventh straight week.
 

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