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FUND FLOWS: Investors Pull Money from Europe, Push to U.S.

U.S. stocks, and the funds that invest in them, have been boosted by the pace of corporate buybacks as companies recycle their profits and money is being repatriated under the reformed tax code.

With Italy’s two major populist parties edging closer to forming a “Eurosceptic” coalition government, and data showing that Japan’s economy contracted in the first quarter, flows to Developed Markets Equity Funds heavily favored those with U.S .mandates during the week ending May 16. Commitments to U.S. Equity Funds climbed to a nine-week high, more than offsetting a 10th straight week of net redemptions from Europe Equity Funds and the first consecutive weekly outflows from Japan Equity Funds since early 4Q17.

U.S. stocks, and the funds that invest in them, have been boosted by the pace of corporate buybacks as companies recycle their profits and money being repatriated under the reformed tax code. According to EPFR sister company TrimTabs Investment Research, “Announced corporate buying (new cash takeovers and new stock buybacks) surged to $156.5 billion in May, driven by Apple’s record $100 billion buyback. But this trend has been strong for some time. Companies announced at least $100 billion in float shrink in five of the past seven months. The volume was depressed in March because Broadcom’s proposed acquisition of Qualcomm was scuttled, which offset most of the $98.1 billion in cash mergers and buybacks rolled out that month.”

The bulk of the latest U.S. Equity Fund inflows went to Large Cap ETFs, with Small Cap Growth Funds faring best in flows as a percent of AUM terms. The latter were one of only two of the actively managed subgroups to attract fresh money during the week.

Europe Equity Funds continue to feel the chill from political developments in Italy, where the two biggest populist parties moved closer to forming a coalition government based on opposition to austerity, immigration, breaking ranks with the rest of Europe on Russian sanctions and taking an “Italy first” approach to dealings with the European Union. Redemptions from Italy Equity Funds jumped to a 10-week high and the only country fund groups dedicated to major Eurozone markets that recorded inflows for the week were Greece, Portugal and Spain Equity Funds. The latter chalked up a record-setting total that was largely tied to the more than $300 million committed to a single domestically domiciled fund.

Outflows from Japan Equity Funds, meanwhile, continued for a second straight week as investors digested the end of Japanese economy’s longest period of expansion in nearly three decades. Retail redemptions were the biggest since mid-October and foreign currency-denominated flows were negative for the fifth straight week. But Japan continues to enjoy strong support from Global Equity Funds, whose average allocation for this market is at levels last seen in early 3Q11.

Flows to Global Equity Funds, the largest of the diversified Developed Markets Equity Fund groups, climbed to a two-month high in mid-May. This fund group, which enjoyed record-setting inflows last year, has attracted fresh money 19 of the 20 weeks year-to-date.

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

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