With the third quarter earnings season looming, the U.S. Federal Reserve committed to a $10 billion monthly reduction in its balance sheet starting in October, Germany’s election-changing political calculations in Europe and the bones of U.S. President Donald Trump’s tax reform plan presented to a skeptical public; there was plenty for sector-oriented investors to weigh during the final days of September.
EPFR-tracked Financial Sector Funds attracted the biggest inflows as investors responded to the Fed’s assertion that a December rate hike, which will boost banks’ pricing power, remains on the table. Although funds with U.S. mandates claimed the biggest share of the over $1 billion committed by investors, flows into Europe Regional RE Sector Funds hit a nine-week high as they posted their 13th straight inflow.
Higher interest rates are a less attractive proposition for U.S. real estate plays, especially when combined with the shedding of mortgage-backed securities from the Fed’s balance sheet, the questions raised by Hurricanes Harvey and Irma about coastal real estate and affordability issues. U.S. Real Estate Sector Funds posted outflows for the seventh time in the past eight weeks.
Technology Sector Funds saw their four-week run of inflows come to an end as regulatory pressure from Europe and China on major plays exemplified by London’s decision not to renew ride-share giant Uber’s license, prompted investors to reassess the outlook for the sector.
Year-to-date Technology Sector Funds remain second to Financial Sector Funds in terms of flows but still top the list of Sector Fund groups in performance terms ahead of Healthcare/Biotechnology Sector Funds. There is no change to the leading groups when it comes to redemptions (Real Estate Sector Funds) and the weakest performance (Energy Sector Funds).