The prospect of a pro-business French president rather than a populist, and hopes that the politically palatable task of cutting taxes will jump-start U.S. President Donald Trump’s "reflation agenda", saw flows into EPFR Global-tracked Developed Markets Equity Fund groups accelerate sharply during the week ending April 26. Fresh commitments to Japan, U.S. and Europe Equity Funds hit four-, 18- and 71-week highs respectively and Global Equity Funds added another $2 billion to their year-to-date inflow total.
The flows into U.S. Equity Funds sustained a long-running rotation from actively managed funds to ETFs. None of the actively managed sub-groups by style and capitalization managed to record inflows for the week while Mid Cap Value ETFs were the only ETF sub-group to experience net redemptions. Managers of U.S. Equity Funds, meanwhile, continue to pull back from energy stocks despite the recent improvement in the sector’s earnings. The average fund allocation to energy plays is currently at its lowest level in over seven years.
Expectations that centrist Emmanuel Macron will handily beat populist Marine Le Pen in the second round of France’s presidential contest saw flows into Europe Equity Funds surge, although retail investors were net redeemers for the 17th time in the 18 weeks’ year to date. Funds with regional mandates accounted for the bulk of the headline number, which was split roughly 65-35 between U.S. and Europe-domiciled funds.
At the country level flows into France Equity Funds rebounded strongly and Germany Equity Funds recorded their biggest inflow since late March as polls showed incumbent German Chancellor Angela Merkel gaining ground. But U.K. Equity Funds posted their biggest outflow since early 3Q16, in part due to the firm line Merkel is taking when it comes to the EU’s negotiating position regarding the terms of the U.K.’s departure from the bloc in 2019.
Foreign currency-denominated flows for Japan Equity Funds were negative for the fifth time in the past seven weeks, but were more than offset by domestic commitments as a drop in the yen’s value and the Bank of Japan’s decision to leave its current policies unchanged brightened the outlook for Japanese exporters.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.