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FUND FLOWS: As Trump’s Agenda Flounders, European Equity Funds Get a Boost

U.S. equity funds continue to lose money as Trump policies look less like a reality.

The money kept flowing out of U.S. Equity Funds in late May, albeit at a slower pace, as President Donald Trump’s agenda continued to flounder. In turn, the case for some of the alternatives such as Europe strengthened. Global, Europe and Japan Equity Funds all posted inflows during the week ending May 24, offsetting redemptions from U.S. Equity Funds and extending the "week on, week off" pattern that Developed Markets Equity Funds flows have followed since mid-March.

Europe Equity Funds posted inflows for the ninth straight week, the longest such run since late 2015, with the headline number taking a hit from the significant redemptions experienced by Germany Equity Funds. Those redemptions occurred despite the sunny short-term outlook for the German economy and expectations that Chancellor Angela Merkel will retain her grip on power when Germans go to the polls this autumn.

Managers of Europe Equity Funds have responded to the improving economic and political climates by increasing their exposure to industrial, consumer discretionary and financial plays.

Investors pulled money out of U.S. Equity Funds for the fourth week running, their longest outflow streak since the second quarter of last year, with actively managed funds posting their largest collective outflow in over three months. Flows to U.S. Equity ETFs, meanwhile, were positive for the 13th time in the 21 weeks, year-to-date. Flows for U.S. Equity Funds domiciled outside the U.S. have been negative for 11 straight weeks. The last time they experienced such consistent outflows was the second quarter of 2015, when fears about the impact of a strong dollar on the earnings of exporters, and the lure of markets supported by robust quantitative easing programs, saw U.S. Equity Funds of all domiciles record their biggest quarterly outflow in over a decade.

Flows into Japan Equity Funds rebounded to a nine-week high as yen-denominated commitments climbed to levels last seen in late March, while foreign currency flows were negative for the second week running.

The largest of the diversified Developed Markets Equity Fund groups, Global Equity Funds, continued to attract fresh money with investors strongly favoring funds with ex-U.S. mandates.

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

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