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FUND FLOWS: Are Investors Now Fighting the Fed?

In the days prior to last week’s Fed meeting, billions went to equity and bond funds while $25.5 billion was pulled from money market funds.

Expectations that the U.S. Federal Reserve would leave interest rates on hold while it started the long process of trimming its balance sheet kept the money flowing to Emerging Markets Funds and other rate-sensitive fund groups during the third week of September. But the Fed's first meeting since July, which concluded on the same day as the latest weekly reporting period for EPFR-tracked funds, put 100 basis points worth of interest rate hikes during the next 15 months firmly back on the table.

"The Fed has certainly challenged some of the assumptions that have driven flows in recent weeks," EPFR Research Director Cameron Brandt said. "While many of the reasons for those assumptions about U.S. interest rates–­stubbornly low inflation, the stalling of Donald Trump's reflationary agenda, the uncertain impact of winding down the Fed's balance sheet–remain valid, acting on them now carries a whiff of fighting the Fed."

In the run-up to the Fed's September meeting, Emerging Markets Equity and Bond Funds both posted their fifth straight inflow. High Yield Bond Funds took in fresh money for the third time in the past four weeks, Municipal Bond Funds recorded their 11th consecutive inflow and the two major multi-asset fund groups absorbed a combined $3.5 billion.

Overall, EPFR-tracked Equity Funds posted collective inflows of $2.7 billion during the week ending Sept. 20 and Bond Funds $5.6 billion while $25.5 billion flowed out of Money Market Funds.


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

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