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FUND FLOWS: Developed Markets Lure Investors

New money flows into Europe, Japan and Australian equity funds as investors look for alternative to U.S. “reflation” story.

Positive flows for Global, Europe, Japan and Australia Equity Funds enabled EPFR Global-tracked Developed Markets Equity Funds collectively to post inflows during the week ending March 29 as investors looked for alternatives to the U.S. "reflation" story. That story, based on the campaign promises of President Donald Trump, lost some of its credibility when Republicans failed to make good on promises to reform the U.S. health care system.

U.S. Equity Funds posted their second straight weekly outflow with Small Cap Funds taking the biggest hit in both cash and flows as a percent of AUM terms despite posting better performance numbers than their mid- and large-cap peers. There was no let-up in the rotation from active management to ETFs: among actively managed sub-groups, only Mid-Cap Value Funds attracted any fresh money.


Europe Equity Funds, meanwhile, recorded their biggest weekly inflow in over 13 months as polls showing relatively pro-business candidate Emmanuel Macron, likely to win the French presidency ahead of populist rival Marine Le Pen, freed investors to focus on improving regional growth. Unemployment in the EU is at a six-year low and recent GDP growth has been on a par — or slightly better — than the U.S. growth rate. This combination of waxing macroeconomic data and waning fears of a major populist upset in European elections this year saw Italy Equity Funds record their largest inflow since 4Q15.

In Japan the most widely followed Purchasing Manager Index (PMI) has now been in positive territory for seven straight months and Japan Equity Funds look set to post their biggest quarterly inflow since 3Q15. But yen-denominated flows to six domestically domiciled ETFs accounted for over 80 percent of the quarterly total as foreign currency-denominated flows turned negative again in early March.

Funds dedicated to another Developed Asian market, Australia, recorded their biggest weekly inflow since early 4Q14 with retail commitments to Australia Equity Funds setting a new record. Australia has not met the technical criteria for recession — two consecutive quarters of negative growth — since 1991 and investors are currently expecting higher prices for the country’s commodities exports to extend this run into next year.

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

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