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FUND FLOWS: Billions Move to Developed Equities While Awaiting Central Bank Statements

Only U.S. equity funds recorded outflows.

A more optimistic view about the pace at which major central banks will remove their ultra-accommodative monetary support helped three of the four biggest EPFR-tracked Developed Markets Equity Funds to record inflows during the week ending July 26. Europe Equity Funds took in over $3 billion for the second straight week, flows into Japan Equity Funds hit a six-week high, and Global Equity Funds saw year-to-date inflows climb past the $95 billion mark. Only U.S. Equity Funds recorded outflows, extending a run of redemptions that started in mid-June.

Retail investors drove the outflows from U.S. Equity Funds. Their redemptions were the largest since mid-March and fell heavily on Large-Cap Value Dividend Funds during a week when funds managed for growth outperformed their value counterparts across all capitalizations. Funds with Socially Responsible and ESG mandates did post inflows for the fourth straight week, their longest such run since late 2015.

Europe SRI/ESG Equity Funds did not fare so well, posting their biggest outflow in12 weeks. But overall flows to Europe Equity Funds hit an 11-week high as investors positioned themselves in anticipation of a good second-quarter corporate earnings season. They were also responding to signals from the European Central Bank that it will be cautious about withdrawing the extraordinary measures it has deployed. At the country level, flows to Germany Equity Funds rebounded and investors continued to buy into France’s latest reform story, while Italy Equity Funds recorded outflows for the ninth time in the past 11 weeks.

Both yen and foreign-currency flows to Japan Equity Funds were positive in late July as investor focus shifted from the unpopularity of reformist Prime Minister Shinzo Abe to the manufacturing sectors. As a result, outlook, strong corporate profits, the Bank of Japan’s unchanged—and highly accommodative—monetary policies and attractive equity valuations improved.

The largest of the diversified Developed Markets Equity Fund groups, Global Equity Funds, took in another $4 billion, with flows tilting strongly toward funds with fully global mandates, which posted their largest weekly inflow since EPFR started tracking them in late 2000. Global ex-U.S. Equity Funds, meanwhile, extended an inflow streak stretching back to late December, but the latest flows were the smallest in 16 weeks.

Cameron Brandt is director of research for EPFR Global, an Informa Financial Intelligence company.

TAGS: Mutual Funds
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