All of the major EPFR Global-tracked Developed Markets Equity Funds struggled to attract fresh money during the third week of April, with geopolitical risks and the lack of progress on key policy goals by U.S. President Donald Trump’s administration sapping investor appetite for additional exposure to the U.S., Japan and parts of Europe.
While investors showed little enthusiasm for most individual European markets, they continued to buy into the broad growth and valuation story offered by the region as a whole. Europe Equity Funds posted inflows for the fourth straight week and ninth time in the past 12 weeks as the European Union remains on track for a 16th straight quarter of growth and its unemployment rate closes in on an 8-year low. During this rebound, investors have favored fund groups with value rather than growth mandates.
It was a different story at the country level, with only U.K. Equity Funds seeing significant inflows while France Equity Funds experienced further redemptions ahead of its two-stage presidential election, which kicks off this weekend. U.K. voters will be going to the polls in early June after Prime Minister Theresa May called a snap election in hopes of strengthening her government’s hand during the negotiations for Britain’s exit from the EU.
U.S. Equity Funds experienced net outflows for the fourth time in the past five weeks, with Large Cap Growth and Blend Funds seeing the biggest redemptions during a week when funds managed for growth outperformed their value counterparts across all capitalizations. EPFR Global sister company TrimTabs noted in a recent report that, “Announced corporate buying — the sum of newly announced cash takeovers and newly announced stock buybacks — has been trending lower since the election, and has amounted to only $27.0 billion in April. … the corporate buy/sell ratio has been 2.4-to-1 this year, well below the ratio of 4.3-to-1 last year. Companies do not seem nearly as upbeat as most market participants.”
Both foreign and domestic investors pulled money out of Japan Equity Funds in mid-April, responding to North Korea’s bellicose rhetoric and Trump’s efforts to talk down the U.S. dollar. Investors are also waiting to see how proposed labor market reforms play out. The goal of the mooted reforms is to shake up a labor system based on seniority and long hours that deters younger workers from moving jobs and starting a family.
Global Equity Funds, the largest of the diversified Developed Markets Equity Fund groups, kept their inflow streak alive as YTD inflows hit $38 billion.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.