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FUND FLOWS: US Equity Flows Drop Off, While Japan Picks Up

Eyeing political risks of this year’s elections, investors pulling money from Netherlands and France.

Having ended January with a bang, U.S. Equity Fund flows tailed off in early February as the new U.S. administration generated more confusion than progress on key policy goals and a number of 4Q16 corporate earnings reports were accompanied by cautious guidance for this year. But EPFR Global-tracked Developed Markets Equity Funds posted collective inflows for the 11th time in the past 14 weeks as both Japan and Global Equity Funds absorbed over $3 billion.

Yen-denominated flows accounted for the bulk of the new money that flowed into Japan Equity Funds in early February. Overseas interest, which picked up in the fourth quarter last year, has slipped in recent weeks with foreign currency denominated flows moving sideways as a stronger yen clouds the outlook for Japanese export plays. In contrast to last year, when Japanese financial plays attracted the strongest interest at the sector level from EPFR Global-tracked Equity Fund managers, this year three sectors—financials, industrials and consumer discretionary—have seen roughly the same amount of buying interest from those funds.

Europe Equity Funds eked out modest net inflows that were driven by commitments to Switzerland and U.K. Equity Funds as events in France, where revelations about hiring family members have cost moderate Francois Fillon his status as clear front-runner, reminded investors of the political risks posed by this year’s electoral calendar. The first of those elections takes place next month in the Netherlands, and investors have now pulled money out of Netherlands Equity Funds 11 of the past 13 weeks.

One Eurozone market that is swimming against the tide is Spain. Its economy is benefiting from reforms, strong tourism flows and the tailwinds from lower oil prices. Spain Equity Funds have now attracted fresh money for six straight weeks, their longest such run since 3Q15.

 

Two ETFs, one a Large Cap Blend ETF and the other a Short-Term Blend fund, helped pull net flows for all U.S. Equity Funds into negative territory during the first week of February. Actively managed Small Cap Funds outperformed Small Cap ETFs for the week while the opposite was true in the large and mid-cap groupings while, overall, funds managed for growth collectively outperformed their value counterparts across all capitalizations.

Global Equity Funds, the largest of the diversified Developed Markets Equity Fund groups, recorded strong inflows that favored funds with ex-U.S. mandates.

 

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

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