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FUND FLOWS: Fresh Money Finds Its Way Back To Developed Markets Equity Funds

U.S. equity funds were favorable to investors again in late May.

Investors committed fresh money to U.S. Equity Funds for the first time in a month during the final week of May, allowing EPFR Global-tracked Developed Markets Equity Funds to post consecutive weekly inflows for the first time since mid-March. Global and Europe Equity Funds also extended their current inflow streaks, but Japan Equity Funds experienced net redemptions as both foreign and domestic flows dried up.

Flows to Europe Equity Funds continued to favor funds with broad regional mandates over those dedicated to single countries. The broad picture for the region remains favorable, with one measure of business and consumer confidence recently hitting a nine-year high as the combined effects of massive monetary stimulus, a relaxing of fiscal discipline and benign energy prices lifted growth in the Eurozone to levels last seen in 2011, and drove the unemployment rate down to a seven-year low.

At the country level, Italy Equity Funds continue to struggle, reflecting the new consensus that the country’s intractable debt problems and minimal growth make it the major Eurozone country most likely to elect a populist, euroskeptic government in the next 18 months. Investors also took a big step back from U.K. Equity Funds after polls showed the ruling Conservative’s lead in the polls shrinking, opening the door to the possibility of a hung parliament or a government led by the opposition (and increasingly left of center) Labour Party.

The flows into U.S. Equity Funds were concentrated in a handful of Large-Cap ETFs, with none of the actively managed sub-groups by style and capitalization managed to record inflows for the week. Both retail and foreign investors continue to keep their distance: foreign-domiciled U.S. Equity Funds have not posted inflows since early March and the last time retail flows to this fund group were positive was the third week of November.

Retail investors have also pulled money out of Japan Equity Funds for seven straight weeks. Flows to this fund group remain correlated to the export competitiveness of the yen. Japan’s currency has strengthened recently as investors sought shelter from the political and policy confusion surrounding the new U.S. administration.

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

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