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FUND FLOWS: Europe Dragged Down Investor Enthusiasm For Global, Japan and the U.S.

North Korea didn’t scare investors, but the euro was seen as a problem.

EPFR-tracked Developed-Markets Equity Funds posted their first outflow in 10 weeks during late August as commitments to Global, Japan and U.S. Equity Funds failed to offset the biggest outflow from Europe Equity Funds since the final week of February. 

Although European Central Bank (ECB) President Mario Draghi’s remarks at the U.S. Federal Reserve’s Jackson Hole central-bank summit did little to clarify when, and to what degree, the ECB will start withdrawing its extraordinary monetary stimulus, that still left investors plenty to stew over. An impending German general election, the impact of a stronger euro on Eurozone exporters, and the simmering dispute over judicial independence between the European Union and Poland have all prompted investors to look beyond Europe’s current recovery story. ETFs tracking the Euro STOXX-50 index were among the hardest hit during a week when two-thirds of all Europe Equity Funds recorded outflows or no flows.

When it comes to allocating money, managers of Europe Equity Funds have boosted their Italy, Spain and Netherlands allocations to their highest levels since the start of 2016, fall of 2014 and 2011, respectively, while cutting their exposure to the U.K. and Switzerland to levels last seen at the start of 2011.

Japan Equity Funds recorded their seventh consecutive weekly inflow, despite the latest North Korean missile test, which passed over the country before landing in the Pacific. Recent macroeconomic data suggests that business investment and consumer spending are picking up. Fund managers increased their exposure to the materials, industrials, consumer discretionary and information-technology sectors during July, with the average IT allocation hitting its highest level since 2011.

A 10-week outflow streak for U.S. Equity Funds came to an end in late August, as commitments to ETFs narrowly offset redemptions from actively managed funds. For the second week running, all nine of the actively managed subgroups by capitalization and style recorded outflows, while flows to ETFs favored those with large- and mid-cap mandates.

Global Equity Funds, the largest of the diversified Developed-Markets Equity Fund groups, posted inflows for the 37th straight week. The weekly total was, however, the second-smallest since that run began in mid-December.

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

TAGS: Mutual Funds
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