FUND FLOWS: Political Uncertainty, ECB Meeting Steer Money to U.S. Equities and Bonds

Political tensions and a central bank weighing what it will do before a meeting always seem to be driving investors in some direction or another. In previous weeks this year it was North Korea and the Federal Reserve. Now, it’s confrontation in Spain and the European Central Bank, which pushed money to U.S. stocks and bonds.

U.S. Equity Funds tracked by Emerging Portfolio Fund Research posted their third consecutive weekly inflow—the longest such run since the first quarter—during the week ending October 25. Investors were digesting the implications of the recent election in Japan, China’s Communist Party Congress and Spain’s confrontation with Catalonia. 

Retail investors failed to give U.S. Equity Funds significant support. Perhaps talk of the market being overvalued has timely spooked them this month. It was institutional commitments, mostly to Large Cap Blend Funds, that continued the inflow streak, according to EPFR.

At the asset class and single country fund levels, France Equity Funds posted inflows for the 18th time in the past 20 weeks, flows into Thailand Equity Funds climbed to a 42-week high. 

U.S. Bond Funds, meanwhile, extended an inflow streak stretching back to mid-March. Flows to Europe Bond Funds remained subdued ahead of the ECB’s October policy meeting. Among the U.S. Bond Fund groups, only Long Term Corporate and Intermediate Term Government Funds were the only ones that posted outflows. 

Turkey Bond Funds recorded their biggest inflow since the spring of 2013. High Yield Bond Funds extended their longest inflow streak since the start of  the year and Municipal Bond Funds absorbed fresh money for the 15th time since the start of the third quarter. 

Retail commitments to Bond Fund Groups currently account for some 15 percent of total inflows compared to 38 percent in 2012, the year the existing record was set, according to EPFR.

Overall, investors steered another $8.8 billion into EPFR-tracked Equity Funds during the seven days ending Oct. 25. Bond Funds absorbed $6.8 billion and Money Market Funds a net $4.6 billion. Flows to Dividend Equity Funds, which hit a three-month high the previous week, turned negative again, but Equity Funds with SRI/ESG mandates recorded their 25th consecutive weekly inflow.