When it came to developed markets, generally good macroeconomic data vied with not-so-good political news in early October. Investors, faced by Catalonia's secessionist impulses, U.S. President Donald Trump's lack of legislative clout, the divisions within the U.K.'s ruling Conservative Party and the impending Japanese election, again opted for the diversified approach. The nearly $4 billion committed to Global Equity Funds allowed EPFR-tracked Developed Markets Equity Funds to start the fourth quarter with their 12th inflow in the past 14 weeks.
Europe Equity Funds also posted solid inflows overall despite specific concerns about Spain and the U.K. Both of the major regional fund groups attracting more than $750 million as surveys suggest that economic growth in the Eurozone picked up steam in September. The possibility of Catalonia declaring independence, thereby triggering a major confrontation between the national government and one of the country's most dynamic economic regions, did hit Spain Equity Funds hard. Redemptions from that fund group jumped to levels last seen in late 2014 when the rise of the leftist, anti-austerity Syriza Party in Greece was unsettling markets.
During a week when data showed growth in the U.S. service sector hitting a 12-year high and benchmark equity indexes set new records, U.S. Equity ETFs attracted over $5 billion with Small Cap Funds leading the way in both cash and flows as a percentage of AUM terms. But that was not enough to offset over $6 billion in redemptions from actively managed funds, among which those with large cap mandates were hit hardest. Retail investors pulled money out of U.S. Equity Funds for the 90th time in the 92 weeks–since the beginning of 2016.
Retail investors have also pulled back from Japan Equity Funds over the last four weeks. The fund group compiled its longest outflow streak since April. However, foreign currency-denominated flows rebounded to a 15-week high.
Global Equity Funds, which have recorded inflows every week year-to-date totaling $120 billion, have consistently allocated between 10-11 percent of the average portfolio to Japan since the second quarter of 2013. Their weighting for Developed Europe has rebounded for a 13-year low at the beginning of the year and currently stands at 39 percent.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.