Opalesque Industry Update: Emerging markets funds continued their blistering start to the year during the first week of February as investors stepped up their search for higher returns. EPFR Global-tracked Emerging Markets Bond Funds pulled in a record setting $2.14 billion while Emerging Markets Equity Funds absorbed a 68 week high of $5.8 billion. That took their year-to-date totals up to $3.8 billion and $17 billion respectively versus inflows of $2.7 billion and outflows of $11.4 billion for the comparable period last year.|
Other risk assets -- or assets perceived to be risky last year -- also attracted strong interest. High Yield Bond Funds posted their second highest weekly inflow on record, flows into EMEA Equity Funds climbed to a 41 week high and corporate bond funds attracted above average commitments. Europe Equity Funds had their best week in nearly six months and Municipal Bond Funds absorbed over $1 billion for the second week in a row.
Overall, EPFR Global-tracked Equity Funds absorbed $9.83 billion during the week ending Feb. 8, a 44 week high, while Bond Funds took in over $6 billion for the fourth time in the past five weeks. Money Market Funds took in $11.2 billion with over three-quarters of that total going into Europe Money Market Funds. According to EPFR Global’s sister company iMoneyNet the seven day simple yield for all taxable US funds edged up to 0.03 percent after holding at 0.02 percent for 27 consecutive weeks.
Emerging Market Equity Fund Flows
Better than expected US employment numbers, the perception that Greece would toe the line when it came to meeting the requirements for its next round of bailout funding and the neutral to easing bias evident among most major central banks all bolstered the case for emerging markets in early February. Investors favored diversified exposure, with Global Emerging Markets (GEM) Equity Funds taking in a record setting $5.4 billion while Asia ex-Japan, Latin America and EMEA Equity Funds recorded net inflows ranging from $50 million to $245 million.
Flows into Asia ex-Japan Equity Funds were again bolstered by the renewed optimism about China’s growth prospects, with China Equity Funds absorbing another $341 million and extending their longest inflow streak since 4Q10. But outflows from Taiwan Equity Funds climbed to a 20 week high as investors booked recent gains and waited to see what slower growth in Europe and China mean for the island.
EMEA Equity Funds continued their rebound, with inflows hitting a nine month high as investors looked beyond Russia. Flows into South Africa Equity Funds hit a 56 week high, Turkey Equity Funds took in fresh money for the third time in four weeks, Emerging Europe Equity Funds had their best week since early 2Q11 and Africa Regional Equity Funds extended their longest inflow streak in over a year.
The rising tide of interest in emerging markets also lifted flows into dedicated BRIC (Brazil, Russia, India and China) Equity Funds, which recorded their biggest weekly inflow since late 4Q09. Funds coming under the umbrella of the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Thailand and South Africa) theme extended their best run since 2Q11 while Frontier Markets Funds snapped a three week outflow streak.
US, Global, Europe, Japan and Pacific Equity Fund Flows
The willingness of Greece to meet the conditions for continued aid, thereby staving off a disorderly default, kept markets and investors on edge during the week ending Feb. 8. But progress towards a fresh deal, allied to some more positive employment data from the US, saw EPFR Global-tracked Developed Markets Equity Funds post inflows for the fourth time in five weeks.
Flows into Europe Equity Funds climbed to a 25 week high, with Germany Equity Funds’ eight week outflow streak coming to an end, as regional equities indexes climbed to six month highs and Greece edged closer to terms with its creditors. "The consensus on the Eurozone crisis seems to have evolved a lot since the start of the year, from cautious optimism the currency union will muddle through 2012 to a belief it can ride out even a disorderly Greek default," noted EPFR Global Research Director Cameron Brandt.
On the other side of the Atlantic the $2.67 billion pulled out of US Equity Funds the previous week returned during early February, although retail investors extended their current redemption streak to 31 consecutive weeks despite more positive news on job creation. Flows into US Small Cap Funds hit a 10 week high and US Mid Cap Funds took in fresh money for the fifth consecutive week. Investors also committed money to actively managed funds for the third time in the past five weeks as funds with a Growth style outperformed their Value counterparts across all capitalizations for the fourth week in a row.
Japan Equity Funds continue to struggle. They posted outflows for the ninth week running that took the YTD total close to $800 million versus inflows of $2.2 billion for the comparable period last year. A steady trickle of sub-par fourth quarter earnings reports has highlighted the headwinds generated for Japanese exporters by the yen’s appreciation last year.
The two major diversified developed markets fund groups again went in opposite directions. Global Equity Funds saw their four week inflow streak come to an end while Pacific Equity Funds took in fresh money for the fifth time in the past six weeks.
Flows into EPFR Global-tracked Sector Funds took a turn towards growth in early February, with Commodities, Energy, Financial, Real Estate and Technology Sector Funds all taking in over $300 million and three of the five over $700 million.
For the second week running Commodities Sector Funds recorded the biggest inflows, with around half of the money they absorbed going into funds specializing in gold and precious metals. The US recovery, the easing bias of many major central banks and the acquisitions drive by Chinese, Brazilian and Indian companies are underpinning the latest surge in flows. Energy Sector Funds also had a good week as Europe’s cold snap, lower US inventories and tensions in the Middle East lifted the floor for oil prices.
YTD, Real Estate Sector Funds remain the leaders when it comes to attracting new money after posting their biggest weekly inflow since 3Q09. Rising commercial rents in major emerging markets, the belief that the US Federal Reserve will focus on reviving the real estate and housing markets later this year and investors’ continuing preoccupation with dividends have all bolstered interest in this sector.
Elsewhere Telecoms, Healthcare/Biotechnology, Infrastructure and Utilities Sector Funds, which are all perceived as defensive options, posted modest outflows.
Bond and other Fixed Income Funds
The first week of February was another good one for EPFR Global-tracked Bond Funds. Flows again favored riskier, more rewarding asset classes, but nearly every major fund group and sub-group saw some fresh money. US Bond Funds absorbed $3 billion, Europe Bond Funds recorded their fifth straight week of inflows, Emerging Markets Bond Funds had their best week on record and Global Bond Funds saw YTD inflows move north of $6 billion.
Through the first six weeks of 2012 cumulative flows for US, Emerging Markets and Global Bond Funds stand at 46%, 23% and 19% of the full year total for 2011, while Europe Bond Funds are in positive territory after a year when they posted record setting outflows.
At the asset class level High Yield Bond Funds again stood out, taking in $3.55 billion for the week, as retail investors committed new money for the seventh week running. That was their longest such streak since 1Q11 and helped these funds post their second highest weekly total on record. Mortgage Backed Bond Funds extended their inflow streak to 50 weeks and $16.9 billion, while Municipal Bond Funds saw YTD inflows climb to $6.2 billion and Inflation Protected Bond Funds took in fresh money for the seventh week in a row.
Behind the headline number for US Bond Funds, investors continued to rotate money from Intermediate and Short Term Bond Funds to funds specializing in municipal, corporate and mortgage backed debt in response the Fed’s signal that it will keep interest rates at extremely low levels into 2014.
The flows into Emerging Markets Bond Funds again favored funds with hard currency mandates by a more than three to one margin over their local currency counterparts as investors reacted cautiously to the recent appreciation of many EM currencies.