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FUND FLOWS: US Funds Continue to Struggle

Funds focused on global and European equities absorbed the bulk of new money as investor skepticism over Trump-led U.S. renaissance continues.

Global and Europe Equity Funds accounted for the bulk of the inflows recorded by all EPFR Global-tracked Developed Markets Equity Funds during the week ending April 12, as the optimism surrounding U.S. President Donald Trump’s expansive, deregulatory agenda continues to evaporate.

With Trump now focused on major foreign policy issues and signaling that tax reform will have to wait until health care reform (which fell at the first hurdle) finishes the course, U.S. Equity Funds continued to struggle when it comes to attracting fresh money. Among actively managed funds only those with small-cap mandates managed to post inflows for the week. “To the degree that markets reacted to Trump’s victory, they are clearly showing significant signs of weariness or impatience as political realities confront election campaign rhetoric,” noted David Ader, Informa Financial Intelligence’s Chief Macro Strategist, in a recent note. Ader also pointed out the recent, sharp drop-off in U.S. bank lending to commercial and industrial borrowers.

Europe Equity Funds, meanwhile, recorded their biggest weekly inflow since 4Q15 as investors discount the likelihood of a populist outcome in the French and German elections and focus on the region’s slowly accelerating GDP growth, declining unemployment rate and reasonable equity valuations. This optimism faces a test in the coming week as French voters go to the polls, and redemptions from France Equity Funds suggest that some investors still see a chance one of the two main anti-establishment presidential candidates will find a way to win. But Spain’s growth story, with the economy expected to expand by 2.7 percent this year on the heels of a 3.1 percent gain in 2016, kept the money flowing into Spain Equity Funds.

With geopolitical events triggering "safe haven" flows into Japan that boosted the value of yen — and hence took a bite out of Japanese exporters’ competitiveness — investors pulled money out of Japan Equity Funds for the first time since early January. Yen-denominated redemptions accounted for all of the headline number. 

The largest of the diversified Developed Markets Equity Fund groups, Global Equity Funds, extended their longest inflow streak since 3Q14 as YTD inflows climbed past the $37 billion mark.

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

TAGS: Mutual Funds
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