In flow terms, Technology and Commodities Sector Funds are the clear winners so far this year among the major Sector Fund groups tracked by EPFR Global. The former posted their biggest quarterly inflow on record during the first three months of 2017 and kicked off the second quarter with their biggest inflow in over two months, while Commodities Sector Funds rebounded strongly from the outflow they posted in 4Q16. Meanwhile, fund groups that enjoyed the strongest response to the Trump reflation story late last year — Industrial, Infrastructure and Financial Sector Funds — all saw flows lose momentum during 1Q17.
Going into April, Energy Sector Funds stumbled, recording their biggest outflow since mid-September, during a week when data showed crude oil stockpiles in the U.S. continuing to grow. But funds with Master Limited Partnership (MLP) mandates, which invest in tax-advantaged vehicles dedicated to mid-stream U.S. assets, extended their longest inflow streak since 3Q14.
Financial Sector Funds also posted a net outflow, the third in the past four weeks, as investors reined in their expectations for reflationary policies and deregulation in the U.S., and wonder about the degree of support U.S. monetary policy will provide for asset prices. There is speculation that the U.S. Federal Reserve will put interest rate hikes, which increase bank’s pricing power, on hold while putting pressure on asset prices by unwinding part of its $4.2 trillion balance sheet.
The Sector Fund group with the most defensive reputation, Utilities Sector Funds, chalked up their sixth inflow YTD after posting outflows 10 of the fourth quarter’s 13 weeks.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.