With a serious test of President Trump’s agenda in the shape of a vote on rolling back and replacing the Obamacare reforms to the U.S. health care systems, looming flows into EPFR Global-tracked Sector Funds during the third week of March took a turn towards the defensive. Utilities Sector Funds embarked on their first run of inflows in over three months and Gold Funds took in over $1 billion while Industrial Sector posted their biggest outflow since mid-January and redemptions from Financial Sector Funds hit a nine-week high.
U.S. Consumer Goods Sector Funds posted their third consecutive weekly outflow as inflation cuts into real wage growth, the cost of consumer credit creeps up in the wake of recent rate hikes and high profile retailers such as Sears show signs of stress. Fund managers with non-U.S. mandates have also been cutting their exposure to this sector: Japan Equity Fund allocations to consumer staples and discretionary plays falling to 20- and 48-month low respectively during February.
Healthcare/Biotechnology Sector Fund flows were negative for the fifth time in the past seven weeks while Republican legislators debated the fate of the previous administration’s signature health care reforms. A vote scheduled for March 23 was postponed as Republican legislative leaders struggled to muster the necessary votes for their alternative plan.
Meanwhile Technology Sector Funds extended their strong start to the year, posting inflows for the 13th time in the past 15 years. Investors are responding to a strong 4Q16 earnings season and the hope that Trump’s promise to accelerate the repatriation of earnings held overseas will lead to increased dividends, share buybacks and acquisitions activity within this sector.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.