The week ending March 1 saw EPFR Global-tracked Sector Funds flows favor some of the more defensive groups as investors waited to see what President Donald Trump’s state-of-the-union address revealed, and digested the possibility the U.S. interest rates could climb again this month. In contrast to the previous week, Financial and Technology Sector Funds posted outflows while Healthcare and Utilities Sector Funds recorded inflows.
Flows into Utilities Sector Funds were the biggest since late 2Q16 but, we believe, reflect the interest rate expectations at the start of the reporting period rather than the current consensus. It may also indicate investors are chasing the gains the sector accumulated in recent weeks.
The week’s redemptions from Financial Sector Funds were only the third in the 22 weeks since the start of 4Q16, with both U.S. and Europe Regional Funds being the biggest contributors to the headline number for all funds. Eurozone banks face another round of "stress tests" this year and investors are still keeping a nervous eye on Italy’s efforts to stabilize its banking sector.
Although Commodities Sector Funds recorded a seventh straight week of inflows, most of the fresh money went to dedicated Gold Funds. Daily data showed investors pulling money out of those Gold Funds in the wake of Trump’s address to Congress, which restored some confidence in his ability to deliver on the reflationary agenda that underpinned his successful presidential campaign.
Year-to-date Commodities Sector Funds remain the leaders in flows terms, having attracted nearly $9 billion, while Healthcare and Technology Sector Funds have leapfrogged it when it comes to collective performance. Utilities Sector Funds have seen the biggest outflows and Energy Sector Funds are the laggards in performance terms.