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FUND FLOWS: Investors Reverse Course, Pull Money from Japan

Investors grow cautious ahead of the summit between President Trump and Prime Minister Shinzo Abe, as Japan’s trade surplus and land sale scandals raise headwinds.

The strong inflows enjoyed by Japan Equity Funds since late last year came to an abrupt halt during the week ending April 18 and Europe Equity Funds extended their current outflow streak. But overall, EPFR-tracked Developed Markets Equity Funds saw a three-week run of outflows come to an end as an earnings season that has largely lived up to the hype drew investors back to U.S. Equity Funds.

In the case of Japan Equity Funds, both yen and foreign currency flows were negative, with investors looking ahead to the summit between President Donald Trump and Prime Minister Shinzo Abe during which Japan’s trade surplus was a major topic of discussion. The future of the structural reforms championed by Abe—the so-called Abenomics—is also in question because of the effect from a series of scandals involving public land sales is having on Abe’s popularity.

Politics remains a headwind for Europe Equity Funds, which extended their longest run of outflows since 2H16, as efforts to form a new Italian government remain deadlocked and European leaders digested the re-election of Hungarian leader Viktor Orban. Concerns that a stronger euro and rising trade tensions will crimp German exports, uncertainty about the European Central Bank’s timetable for winding up its quantitative easing program and the impact of higher energy prices on the region’s recovery story are also sapping investor sentiment towards Europe.

U.S. Equity Funds, meanwhile, posted their first consecutive weekly inflow since late January on the back of a 1Q18 corporate earnings season that is, so far, meeting expectations. Hopes that the reality of trade adjustments will undershoot President Trump’s rhetoric also helped this fund group, with Large Cap Blend exchange traded funds seeing the biggest inflows in cash terms and Small Cap Growth ETFs in flows as a percent of assets under management. Year-to-date, funds managed for growth are handily outperforming those with mixed and value mandates across all capitalizations. Actively managed growth funds have an edge over their ETF rivals while the reverse is true for mixed funds.

Global Equity Funds, the largest of the diversified Developed Markets Equity Fund groups, posted their ninth straight weekly inflow and 15th so far this year. But the pace of those inflows is running at around a sixth of the weekly average seen during the first five weeks of the year.

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

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