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FUND FLOWS: European Equity Funds Remain The Investor Favorite

Signs of economic strength have made Europe the hot ticket as equities see more inflows than bonds.

The final week of May saw EPFR Global-tracked Europe Equity Funds absorb another $2.2 billion, extending their longest inflow streak since the end of 2015 to 10 weeks and $17 billion. Accelerating growth and the apparent waning of populist forces drew investors back to an asset class shunned for much of last year. At the same time, funds dedicated to a market in the process of quitting the European Union, the U.K. recorded their sixth straight outflow and second biggest year-to-date.

A perception of economic weakness in the U.K. and growing European strength is evident in both EPFR Global’s fund flow data and currency analysis by sister company Informa Global Markets (IGM). Weak hard data, neutral monetary policy, Brexit-related uncertainty, an election that might be more competitive than first thought and the return of terror have conspired against U.K. Equity Funds. Those factors have made shorting the pound and going long the euro an increasingly crowded trade.

While investors with a European focus are looking ahead to the U.K.’s June 8 election, investors in the U.S. and elsewhere are waiting on the U.S. Federal Reserve’s mid-June meeting when policymakers are widely expected to deliver the second 25-basis-point rate hike of the year-to-date. The prospect dampened flows to some historically interest rate-sensitive fund groups such as Municipal and Local Currency Emerging Markets Bond Funds but had no appreciable effect on others such as Utilities Sector and High Yield Bond Funds.

Overall, the week ending May 31 saw EPFR Global-tracked Bond Funds post collective inflows of $6 billion while Equity Funds absorbed $13.7 billion — a five-week high — and Money Market Funds over $11 billion.

At the single country and asset class fund level, Municipal Bond Funds saw their 10-week run of inflows come to an end and Inflation Protected Bond Funds recorded outflows for the sixth time in the past seven weeks. Investors committed fresh money to India Equity Funds for the 13th straight week, snapped Russia Equity Funds seven-week outflow streak and redeemed record setting amounts from Poland Bond Funds.

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

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