The week leading into the U.S. Federal Reserve’s annual central bank summit in Jackson Hole, Wyoming, saw investors in a cautious, late-summer mood. EPFR-tracked Money Market Funds attracted over $35 billion during the week ending Aug. 23, more than six times the amount committed to Bond Funds and 12 times the amount absorbed by Equity Funds, as the market’s focus shifted back to the outlook for monetary policy during the final four months of 2017 and the first quarter of 2018.
With the European Central Bank’s reputation for premature tightening and its current quantitative easing (QE) program approaching the date it was last extended to, perhaps the most anticipated speech during the summit is ECB President Mario Draghi’s. Investors are concerned that improving economic data from the Eurozone may prompt the ECB to start tapering its QE program in the fourth quarter. Flows to Europe Equity Funds have declined for four straight weeks and, during the past week, they recorded their first outflow since early July.
Flows to Emerging Markets Equity and Bond Funds, meanwhile, bounced back after inflow streaks of 21 and 28 weeks came to an end the previous week. The latest Federal Open Markets Committee (FOMC) minutes have bolstered expectations that policymakers will continue their gradualist approach to tightening U.S. monetary policy.
Overall, EPFR-tracked Equity Funds recorded a collective inflow of $3 million during the third week of August versus $5.4 billion for Bond Funds and $37 billion for Money Market Funds. Investors also committed fresh money to Alternative Funds for the fourth week in a row, their longest such run since the middle of the first quarter. The bulk of that money went to funds dedicated to an asset class–derivatives–that many shunned in the wake of the great financial crisis.
At the asset class and single country fund levels, Mortgage Backed and Bank Loan Funds recorded their biggest weekly outflows since early April and the first quarter of 2016, respectively. Redemptions from Russia Bond Funds hit their highest level since the start of 2015, Russia Equity Funds posted outflows for the 17th time in the past 20 weeks and Brazil Equity Funds extended their longest outflow streak in over two years.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.