Fears that inflation is accelerating in key markets around the world, spurring central bankers to reconsider the measured pace of policy tightening, kept the pressure on U.S. Equity Funds during the second week of February and hit a number of fixed income fund groups. High Yield Bond Funds recorded their second largest weekly outflow since EPFR started tracking them in 2003 while redemptions from Emerging Markets and Global Bond Funds hit levels last seen in mid-4Q16 and mid-1Q16, respectively.
This pattern is consistent with that of the week when High Yield Bonds posted their biggest outflow so far. Then, it was the addition of another 200,000 plus jobs the previous month that fueled fears a recovering economy could prompt the U.S. Federal Reserve to raise interest rates sooner than previously anticipated. The specter of higher rates putting pressure on corporate earnings spurred investors to redeem a record-setting $11.38 billion from High Yield Bond Funds during the first week of August, 2014, and pull over $19 billion—a 26 week high—from U.S. Equity Funds.
While U.S. Equity Funds experienced further outflows on the heels of last week’s record total, the seven days ending Feb. 14 did see Global, Japan and Europe Equity Funds record solid inflows as investors rotated exposure to markets where central banks lag the Fed when it comes to tightening monetary policy. Overall, investors committed net $5.9 billion to EPFR-tracked Equity Funds during the second week of February. Bond Funds experienced redemptions totaling $14.1 billion and Alternative Funds $2 billion—their largest weekly outflow since 3Q10—while $27.3 billion flowed out of Money Market Funds.
Investors did maintain appetite for funds with Socially Responsible and Environmental, Social and Governance mandates. The last time SRI/ESG Equity Funds posted collective outflow was early May.
At the single country fund level, flows into France and Switzerland Equity Funds hit 20- and 58-week highs, respectively, while Spain Equity Funds posted their biggest inflow since 2Q14 and Netherlands Equity Funds attracted fresh money for the 12th time in the past 13 weeks.
As the initial shock of the latest market correction began to fade during the second week of February, sector-oriented investors started to refocus on a strong 4Q17 corporate earnings season with five of the 11 major EPFR-tracked Sector Fund groups posting inflows, up three from the previous week. Commodities and Technology Sector Funds attracted the largest amounts of fresh money during the week ending Feb. 14 and Financials, Telecoms and Energy Sector Funds also posted inflows.
Cameron Brandt is Director of Research at Informa.