During the third week of June 2017, all of the major developed markets equity fund groups except U.S. equities recorded inflows. This year the opposite was true. U.S. equity funds extended their longest run of inflows since the second quarter of 2013 during the week ending June 20 while Japan, Europe and Global Equity Funds posted outflows ranging from $1.9 billion to a record-setting $8.11 billion for Global Equity Funds.
Although one ETF accounted for over $2 billion of the headline number for Global Equity Funds, the redemptions were broadly based with 19 funds recording outflows in excess of $100 million and 34 seeing more than $50 million flow out. Expectations for global economic growth, which began the year on a high note, have cooled in recent weeks as higher energy prices, the steady tightening of U.S. monetary policy and trade tensions have sapped momentum.
Europe Equity Funds saw more money flow out as the issue of immigration flared up in Germany, Poland’s leadership floated the idea of a referendum on the terms of the country’s European Union membership, consumer confidence in the eurozone faltered, the threat of a trade war between the U.S. and China dominated the headlines and investors digested the European Central Bank’s signals regarding the end of its current quantitative easing program.
At the country level Italy Equity Funds again recorded inflows as investors cautiously rebuild positions they trimmed while the country was in political limbo. But France Equity Funds experienced redemptions for the ninth week running. Investors are discounting the impact of the cautious structural reforms introduced by President Emmanuel Macron’s administration and paying more attention to waning business confidence, recent industrial action and the country’s stubbornly high unemployment rate.
Japan’s unemployment rate is currently less than a third of France’s. But the country’s exporters are vulnerable if a full-scale trade war breaks out and safe-haven flows to the country pose a threat to the competitiveness of the yen. Foreign-domiciled Japan Equity Funds experienced outflows for the 16th time in the past 17 weeks, with the latest redemptions hitting a 12-week high going into the final 10 days of June.
U.S. Equity Funds saw flows rebound as the week progressed, allowing them to post their seventh consecutive inflow, even though foreign currency-denominated flows were negative for the first time in a month and retail investors extended a redemption streak that stretches back to the final week of 2Q17. Small Cap Growth Funds were the week’s best performers but Large Cap Growth Funds attracting the biggest inflows in cash terms and Small Cap Value Funds inflows as a percentage of AUM terms.