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FUND FLOWS: Global Equities Hit New Record While Spanish Funds Bleed Money

Across the board, inflows kept up with the performance of equities.

Equity Funds continue to attract money, except in one country during the week ending Oct. 11.

Flows into Global Equity Funds hit a new record high last week, and Global Emerging Markets (GEM) Equity Funds posted their biggest inflow since mid-May. Investors looked for ways to benefit from soaring equity markets while side-stepping a variety of political risks ranging from North Korea's bellicose expansion of its nuclear capabilities to Catalonia's stand-off with Spain.

Overall, $11.5 billion–a 17-week high–flowed into EPFR-tracked Equity Funds while Bond Funds absorbed $5.4 billion and Money Market Funds over $2 billion. Equity Funds with socially responsible investment (SRI) mandates attracted new money for the 23rd straight week.

Although, global markets enjoyed a “relief rally” toward the end of the week as Catalonia appeared to step back from a bid for outright independence from Spain. Italy's current government pushed forward with electoral reforms that, if passed, are expected to clip the wings of the populist Five Star Movement–but mutual fund investors remained unconvinced.

Spain Equity Funds ended the week having posted their second largest outflow on record and redemptions from Italy Equity Funds climbed to levels last seen in the second quarter of 2015.

Other Developed Equity Markets

Benchmark equity indexes in Japan and the U.S. hit 21-year and record highs, respectively, while Germany's DAX index broke records as it made a run at the 13,000-point level.

Investors were, however, wary of taking on direct exposure to these markets. As a result, Global Equity Funds enjoyed a banner week that allowed them to purchase, based on current allocations–$1.5 billion worth of US stocks, $600 million worth of Japanese stocks and $320 million worth of German equities. In all three cases, that exceeded the amount committed to dedicated U.S., Japan and Germany Equity Funds.

Once again, despite concerns about political trends in the UK, Germany, Italy and Spain, Europe Equity Funds posted solid inflows overall that went largely to Europe and Europe ex-UK Regional Funds.

Investors showed some interest in smaller European markets. Finland Equity Funds recorded inflows for the fifth straight week, their longest such run since mid-4Q16, and Austria Equity Funds posted their biggest inflow in over 11 months.

Sector Funds

Going into mid-October, and the start of the third quarter corporate earnings season, U.S. President Donald Trump showing some energy in pursuit of his tax and healthcare agendas, expectations of another U.S. rate hike in December and the synchronized global recovery all competed for the attention of sector-oriented investors.

Better manufacturing data generated by key markets in recent weeks continued to draw a response, with flows into EPFR-tracked Commodities Sector Funds hitting a five-week high as they posted their ninth consecutive inflow and Industrial Sector Funds taking in over $600 million for the second week running. Of the top 10 Commodities Funds by size of inflows, however, seven were Gold Funds.

Although the first round of the third quarter investment bank earnings reports exceeding modest expectations and another U.S. rate hike is still on the table, flows to funds with U.S. mandates accounted for less than half of the headline number for all Financial Sector Funds as they recorded their fifth straight inflow.

Healthcare/Biotechnology Sector Funds, which have seen flows rebound in recent weeks as efforts to roll-back the so-called Obamacare reforms fell short and renewed hopes for tax reform promised increased dividend payments and merger activity, posted their biggest outflow since mid-August as Trump looked for executive options to achieve his administration's goals.

Bond Fund Flows

With the exception of Asia Pacific Bond Funds, all the major EPFR-tracked Bond Funds by geography attracted fresh money during the week ending Oct. 11. The fund group collectively moved a step closer to eclipsing the full-year inflow record set in 2012.

The outflows from Asia Pacific Bond Funds were driven by redemptions from Japan Bond Funds, which have been hit by the Japanese government's retreat from fiscal discipline in favor of another stimulus package and by the lack of liquidity in a market where the Bank of Japan is buying up most of the available supply.

Investors committed fresh money to Emerging Markets Bond Funds for the eighth consecutive week as flows to Local Currency EM Funds rebounded. Investment grade, short term and Asia ex-Japan were their preferences by quality, duration and region. At the country level, Thailand Bond Funds recorded their biggest weekly inflow since mid-3Q15 despite the modest yields offered by Thailand's sovereign debt compared to other regional markets.

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

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