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02 October, 2014 15:56 IST
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Bond funds move deeper into record setting territory as fiscal cliff looms
Source: IRIS International (09-NOV-12)
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While US President Barack Obama was promising that the best is yet to come in the wake of his re-election victory on November 6 investors were acting as if the worst is far from over. Flows into EPFR global-tracked bond and money market funds hit a record high during the week ended Nov. 7 while volatility funds recorded their biggest inflow since the third week of August as investors focused on so-called fiscal cliff facing US policymakers and the Eurozone’s continuing struggle to resolve its four-year-old debt crisis.

Overall, investors steered over USD 50 billion into money market funds and nearly USD 10 billion into bond funds, pushing the latter's year-to-date total over the USD 400 billion mark. Equity Funds took in a net USD 1.12 billion with dividend equity funds taking in over USD 900 million despite the implications that Obama's victory has for their taxation in the US.

Emerging markets equity and bond funds retained their attraction for investors, with China equity funds again standing out among the single country fund groups and dedicated BRIC (Brazil, Russia, India and China) equity funds snapping a 28 week outflow streak.

EPFR global-tracked emerging markets equity funds took in a USD 2.43 billion during the first week of November as retail commitments jumped to their highest level since mid-February. For the second week running Asia ex-Japan and the diversified Global Emerging Markets (GEM) Equity Funds took in money while EMEA and Latin America Equity Funds experienced modest net redemptions.

China equity funds extended their current inflow streak to nine weeks and USD 3.2 billion ahead of the 18th Communist Party Congress that opened Thursday and will end with a new slate of leaders preparing to take over management of the world’s second largest economy. But India Equity Funds continue to struggle as rising inflation has limited the options for monetary easing.

Among the fund groups in the EMEA universe Africa and Emerging Europe Regional Funds stood out. The latter were hit by the turmoil surrounding Greece's latest package of austerity measures and data suggesting even Germany's economy is beginning to feel the strain, with redemptions hitting their highest levels since mid-May. Africa Regional Funds, however, enjoyed their best week since early January as robust regional growth rates caught the eye of investors.

Flows into Latin America Equity Funds remained subdued, although Brazil equity funds managed to attract USD 42 million with the bulk of that money going into Europe domiciled funds. Peru Equity Funds took in fresh money for the third straight week, their longest such run since late 1Q12, while Chile Equity Funds posted outflows for the eighth time in the past 10 weeks.

Although daily data showed flows into EPFR Global-tracked developed markets equity funds climbing in the wake of Tuesday's US Presidential election, that was not enough to offset earlier redemptions that resulted in US, Canada, Europe and Japan Equity Funds posting net outflows for the week ended Nov. 7.

Outflows from US equity funds were driven by redemptions from actively managed Large Cap Funds, which more than offset solid flows into Mid Cap ETFs during a week when funds with a Growth style outperformed their Value counterparts across all capitalizations. Redemptions from Europe domiciled US equity funds jumped to their highest level, in dollar terms on record and since mid-3Q11 in percentage of AUM terms.

Europe equity funds, meanwhile, saw retail commitments jump to their highest level since mid-1Q11. As has often been the case this year that corresponded with a jump in redemptions - to a 27 week high - by institutional investors. Regional funds and some country funds tied to non-euro markets continued to attract fresh money but Germany and France Equity Funds again suffered outflows.

Also experiencing outflows were Japan Equity Funds, with net redemptions hitting a 10 week high, as Europe's continuing problems and the prospect of the US fiscal cliff raised further questions about demand for Japanese exports going into the New Year.
Global equity funds, the major diversified developed markets fund group, took in new money for the 10th week in a row.

Investor appetite for the financial sector remained undimmed by the election victories of US President Barack Obama and Senator-elect Elizabeth Warren, and all that implies for regulation of the sector, with EPFR Global-tracked Financial Sector Funds taking in nearly USD 1 billion during the first week of November. Daily data shows solid inflows both before and after Tuesday’s election for the best performing sector fund group YTD.
Consumer goods and industrial sector funds also had good weeks. The latter posted their biggest inflow YTD as investors penciled in a swing in US fiscal policy towards lower income groups that spend more of their income on staples.

Fears about global economic growth, which flared up again on the back of more poor European data, saw redemptions from technology sector funds hit a 40 week high. Commodities sector funds did post inflows overall, but if flows into gold funds are factored out there is little to suggest that investors see brighter economic days ahead.
One of the more defensive fund groups, utilities sector funds, recorded their biggest inflow since the second week of May. This fund group has struggled for most of 2012 after posting record setting inflows last year.

Flows into EPFR global-tracked bond funds during the week ended Nov. 7 were almost double the previous week's USD 5 billion as investors sought shelter from the rough sailing they see over the next three months. US Bond Funds posted their biggest inflow since the second quarter and Global Bond Funds had their best week since mid-2Q11 while Europe, Municipal, Mortgage Backed, High Yield, Total Return and Emerging Markets Bond Funds all took in over USD 600 million for the week.

Among the US Bond Fund sub-groups, US intermediate government bond funds stood out as flows into two large ETFs underpinned a weekly record for inflows. Short Term Bond Funds also pulled in over USD 1 billion.

Europe bond funds continued to attract healthy inflows, with commitments over the past three weeks exceeding USD 4 billion. Most investors opted for diversified exposure during early November. The only country fund group to see significant interest was Sweden Bond Funds.

Flows into emerging markets bond funds were evenly divided between those with local currency mandates and their hard currency counterparts. Asia remains the preferred choice for regional investors with China Bond Funds enjoying steady inflows since the beginning of the fourth quarter.


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