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FUND FLOWS: Expected Fed Rate Hike Pushes Money Out of Global Sectors

Redemptions are happening in gold, real estate and utilities as nearly everyone anticipates the U.S. Federal Reserve to raise its rate.

Flows for EPFR Global-tracked Sector Fund groups during the week ending May 24 reflected the markets near certainty that the U.S. Federal Reserve will hike interest rates by another 25 basis points when it meets in mid-June. Redemptions from Gold Funds hit a nine-week high, investors pulled another $485 million out of Real Estate Sector Funds and Utilities Sector Funds experienced their biggest outflow since the first week of October.

In addition to the general move away from funds with exposure to dividend-paying stocks, Utilities Sector Funds are also coming under pressure from other directions. In the U.K., the ruling Conservatives are promising to cap energy tariffs if they win the impending general election, while expectations that U.S. utilities will benefit from a reduced regulatory burden are being reassessed in light of the new administration’s policy missteps.

Investors still expect progress on the infrastructure promises made by President Donald Trump, as these dovetail with the electoral imperatives of U.S. lawmakers who face the voters late next year, and China’s talking up of its belt-and-road initiative is keeping the sector in the spotlight. Flows to Infrastructure Sector Funds were positive for the third straight week.

Technology Sector Funds, which have only posted outflows twice so far this year, extended their current inflow streak. At the country and regional level, flows into funds dedicated to China have surged in recent weeks, with the latest week’s inflow to China Technology Sector Funds the largest since early in 2015’s third quarter.

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

TAGS: Mutual Funds
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