The week ending May 9 saw oil prices hit a three-and-a-half-year high, a development that raises questions about growth, inflation and interest rates around the world.
Investors with a sector focus were slow to respond to the most obvious play, with Energy Sector Funds only seeing flows pick up towards the end of the week, reserving the bulk of their goodwill for Technology Sector Funds which recorded their biggest inflow since mid-March.
Five of the 11 major sector fund groups tracked by EPFR recorded outflows for the week that ranged from $10 million for Telecoms Sector Funds to $477 million for Financial Sector Funds.
The lack of response so far this year to rising oil prices owes something to the fact that mutual investors positioned themselves for it some time ago. Investors committed over $50 billion to Energy Sector Funds between early 2014 and mid-2017 in anticipation of a sustained rise in oil prices that has only materialized this year.
Higher energy prices represent a headwind for Utilities Sector Funds. In addition to boosting inflation, thereby increasing the likelihood of higher interest rates, more expensive energy also adds to operating costs that in some cases cannot, for regulatory reasons, be passed on to customers.
Technology Sector Funds again rode some strong first quarter earnings reports to lead the pack when it came to pulling in fresh money. This week, investors favored funds with broad mandates over those whose remit is more narrowly focused.