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FUND FLOWS: Emerging Market Bonds Reach 19-Week High

Money flows into EM, High Yield and U.S. Bond Funds as investors pare back expectations of "Trump pump" to U.S. economy.

The week following the U.S. Federal Reserve’s first policy meeting of 2017, which left U.S. interest rates on hold, saw flows into EPFR Global-tracked Emerging Markets Bond Funds jump to a 19-week high, High Yield Bond Funds take in over $1.5 billion for the third week running, and U.S. Bond Funds absorb over $9 billion as investors continue to pare their outlook for further hikes. Among the factors driving those expectations lower is the perception that it will take U.S. President Donald Trump much of this year to forge a working relationship with Congress and develop expansionary economic policies that Republican lawmakers can rally behind. That, if true, means U.S. rate-setters will not be dealing with an overheating American economy.

For equity investors, the prospect that Trump’s promises to stimulate the U.S. economy will not bear fruit any time soon prompted them to take a turn for the defensive during the week ending February 8. U.S. Equity Funds posted modest outflows, commitments to Utilities Equity Funds hit a 32-week high, and funds with geographically diversified mandates generally fared better than those with single country mandates.

Overall, EPFR Global-tracked Bond Funds collectively absorbed another $13.4 billion and Equity Funds $6.3 billion while Money Market Funds took in over $10 billion.

At the country and asset class levels, both Russia Equity and Bond Funds recorded strong inflows, Italy and Netherlands Equity Funds posted outflows for the eighth time in the past 10 weeks, and redemptions from Australia Bond Funds hit a 12-week high. Municipal Bond Funds extended their current, modest inflow streak, Dividend Equity Funds posted consecutive weekly inflows for the first time since early October, and flows into Inflation Protected Bond Funds jumped to a 14-week high.

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

TAGS: Mutual Funds
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