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FUND FLOWS: Investors Pull Money from Europe

The latest redemptions from European equity funds extend their current outflow streak to 17 weeks; investors remain leery of the political trends even as the economy improves.

Developed Markets Equity Funds eked out modest inflows during the week ending July 4 as flows to JapanGlobal and Canada Equity Funds offset redemptions from U.S. and Europe Equity Funds.

In the case of Europe Equity Funds, the latest redemptions extended their current outflow streak to 17 straight weeks. That run, however, has yet to erase the inflows this fund group absorbed between the second quarter of last year and the first three months of this one. Although wages are finally rising in the eurozone and unemployment is at an 8-year low, investors remain leery of political trends in the continent and the ability of European governments to manage the fallout from a U.S.-China trade war, a surge in immigration, an end to the European Central Bank’s quantitative easing program, markedly higher energy prices or a radical change in direction by Italy’s new government.

While Italy’s new populist government has taken a back seat with investors to Germany’s political struggle over immigration, which at times has threatened the survival of Chancellor Angela Merkel’s coalition, recent statements suggest it remains willing to test the eurozone’s fiscal rules in order to cut taxes and boost social spending. Meanwhile, Germany Equity Funds have been hit with net redemptions in 17 of the past 20 weeks—in part because of concerns about the impact of tariffs and a strong currency on its export model—and France Equity Funds last posted an inflow in mid-April.

 

U.S. Equity Funds posted modest outflows as investors moved out of Mid- and Large-Cap Funds, which they view as more exposed to trade tensions, and committed fresh money to Small-Cap Equity Funds for the 11th time in the past 13 weeks. Among the actively managed subgroups by capitalization and style, only Large-Cap Blend recorded net inflows for the week. Managers of U.S. Equity Fund continue to increase their bets on technology plays; allocations to this sector hit a fresh record high in early June and now account for nearly a quarter of the average fund portfolio.

Domestic investors committed over $2 billion to Japan Equity Funds during early July as retail support increased for the third straight week. Of the 12 funds that attracted the most money during the week, seven tracked the Nikkei 225 Index and three the TOPIX. Foreign currency-denominated flows for this fund group were negative for the 12th consecutive week.

Global Equity Funds, the largest of the diversified Developed Markets Equity Fund groups, saw flows rebound after two straight weeks of outflows. Funds with fully global mandates outgained their ex-U.S. counterparts by an 11-to-1 margin.

Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.

TAGS: Mutual Funds
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