At first glance, the flows into EPFR Global-tracked Sector Funds during the second week of February suggest that investors are still buying into the reflationary policies promised by new U.S. President Donald Trump and positioning themselves for inflation and interest rate hikes those policies are expected to trigger. Commodities Sector Funds absorbed over $2 billion for the second week running and flows into Infrastructure, Industrial and Financial Sector Funds hit eight, 10 and 13-week highs respectively while Utilities, Real Estate and Healthcare Sector Funds recorded outflows.
However, over 85 percent of the fresh money absorbed by Commodities Sector Funds during the week went to dedicated Gold Funds. “That is more consistent with the narrative that a cautious Federal Reserve will remain behind the curve when it comes to inflation and that much of the gains anticipated for U.S. financials will come from deregulation rather than higher interest rates,” observed EPFR Global Research Director Cameron Brandt.
Redemptions from U.S. Real Estate Sector Funds again accounted for the bulk of the headline number for all Real Estate Sector Funds. Funds with Japanese mandates, however, took in fresh money for the 32nd time in the 33 weeks since the start of 3Q16. U.K. Real Estate Funds, which suffered large redemptions in the wake of the late June vote to leave the European Union, posted modest outflows for the fifth time in the past six weeks.
Energy Sector Funds absorbed nearly $400 million during the week that went largely to funds dedicated to Master Limited Partnerships (MLPs), a tax advantaged vehicle for funding investment in U.S. mid-stream assets such as pipelines and storage tanks. The new administration’s more accommodating view of oil pipelines and its support of increased infrastructure spending has helped Energy MLP Funds post inflows for 11 straight weeks.
Cameron Brandt is Research Director of EPFR Global, an Informa Business Intelligence company.