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FUND FLOWS: Redemptions Pick Up in U.S. Equity Funds

Talk of a Fed rate hike and new tax plan in the United States is muddying the rest of 2017.

The biggest redemptions from U.S. Equity Funds since mid-June meant that EPFR-tracked Developed Markets Equity Funds ended September by recording only their second outflow of the third quarter. Flows for the rest of the major groups by geography ranging from an outflow of over $1.2 billion for Japan Equity Funds to a $3.4 billion inflow for Global Equity Funds.

Investors looking at Europe had much to digest during the week ending Sept. 27, ranging from the fractious negotiations between the United Kingdom and the European Union over the former’s exit from the latter to the nature of the coalition government that will emerge in the aftermath of Germany’s recent general election. While making adjustments at the Europe Country Fund level, investors continued to back the region’s overall recovery story with both Europe and Europe ex-UK Regional Funds attracting over $600 million.

Managers of these diversified funds have cut their allocation to the U.K. to levels last seen in the start of 2009. In addition to the uncertain outcome of the U.K.'s Brexit negotiations, it is seen at increasing risk of voting in a hard left government under Labour Party leader Jeremy Corbyn at the next election. At the sector level, Europe Equity Fund allocations to financials slipped back from the 91-month high they touched in July and the average weighting for consumer discretionary stocks hit its lowest level since the fourth quarter of 2014..

Anticipation of U.S. President Donald Trump’s tax reform plan did not move the flow needle for U.S. Equity Funds, despite the proposal to slash the headline rate for U.S. corporations which is part of the package. Investors pulled over $3 billion out of both ETFs and actively managed funds during a week when funds with a value style outperformed their growth counterparts across all capitalizations.

Japan Equity Funds posted their first consecutive weekly outflow since early June. Foreign currency-denominated redemptions hitting a record high, during a week when Japan Prime Minister Shinzo Abe called a snap election for Oct. 22, 14 months before the end of parliament’s current term. Foreign investors have cooled towards Japan as Abe’s government has shifted its focus from reform to old-style economic stimulus plans.

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

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