Investors with a sector focus continued to put Financial Sector Funds at the top of their lists during the week ending July 19 as they positioned themselves for a round of stock buybacks announced by major U.S. banks late last month. Eight of the other 10 major Sector Fund groups tracked by EPFR Global also posted inflows that ranged from $1 million for Industrial Sector Funds to $124 million for Consumer Goods Sector Funds.
Among the fund groups experiencing redemptions were Commodities and Energy Sector Funds, with the latter posted their third consecutive weekly outflow as oil prices remain below $50 a barrel and Saudi Arabia admitted exceeding its current production target in June.
According to Charles Biderman, Chairman of EPFR Global sister company TrimTabs Investment Research, this shift in flows may mean investors are finally facing up to reality.
“Underlying the entire energy complex has been an ongoing breakthrough in technology that has brought break-even for many new US and Canadian oil fields to around $40 per barrel,” Biderman said in a recent research note. “On top of that, zero interest rates have supported huge amounts of money flowing into energy exploration and development. Why not borrow for virtually nothing to supply more oil if break-even keeps dropping and remains well below the already lower price?”
The redemptions from Commodities Sector Funds were driven by the biggest outflows in eight weeks from dedicated Gold Funds as optimism about the pace of U.S. interest rate hikes encouraged investors to rotate back to riskier asset classes.
Year-to-date Financial Sector Funds have chalked up the biggest inflows, followed by the Technology Sector Funds which are the best performing group. Telecoms Sector Funds rank last in terms of flows, Energy Sector Funds in terms of performance.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.