Fund flows reflect calm after rally

Fund flows worldwide were subdued in the final week of May, as investors took stock of the recent rally by global equity markets, according to EPFR Global. Based in Massachusetts, EPFR Global tracks around $10 trillion in assets in traditional and alternative funds worldwide.

A total of $4.1 billion flowed into money market funds last week, while $885 million went into US bond funds. Sector funds and Europe equity portfolios suffered the biggest outflows. With the exception of Europe, Middle East, and Africa (EMEA) equity funds, flows into emerging markets equity funds were generally negative, especially into regional ones. Some country-specific funds did well. Russia and Brazil equity funds posted their sixth straight week of inflows and Taiwan equity funds extended their winning streak to 18 consecutive weeks.

ôWith attention shifting to the US Federal ReserveÆs next meeting in late June and hopes of another interest rate cut fading in the face of better than expected GDP data, itÆs not surprising that investors are booking profits from sector fund positions taken out as a hedge against dollar weakness,ö says Massachusetts-based EPFR global senior analyst Cameron Brandt. ôSpeculation that there could even be an anti-inflationary rate hike in the fourth quarter is prompting a modest reassessment of the outlook for emerging markets.ö

Last week, solid inflows into EMEA equity funds, anchored by interest in commodity-rich Russia, allowed emerging markets equity funds to post a sixth straight week of net inflows despite redemptions from Asia ex-Japan, diversified GEM and Latin America equity funds. But the $5 million they collectively absorbed was a fraction of the $2.1 billion they averaged over the previous five weeks.

Outflows from Asia ex-Japan equity funds, which totalled a net $227 million, were driven by China and Greater China equity funds as investors focused on the wage, input and currency pressures on corporate profit margins. They also accelerated their retreat from Malaysia equity funds as that countryÆs government struggles with the fallout from MarchÆs electoral setback. But other fund groups geared to individual countries fared well, with India equity funds posting their ninth straight week of inflows and Thailand equity funds enjoying their best week in percentage terms since the third quarter of 2007.

With the US dollar continuing to rally and talk shifting to the timing of a hike in US interest rates, investors pulled out of funds geared to interest rate-sensitive sectors and those that have served as a hedge against dollar weakness during the final week of May, says EPFR Global.

Real estate, energy, financials and commodities sector funds posted net outflows of $836 million, $716 million, $565 million and $358 million, respectively. Consumer goods sector funds, meanwhile, posted their fourth straight week of outflows and telecom sector funds û despite turning in the best performance among sector funds with a 1.09% gain û for the tenth time in the past 11 weeks. Investors also pulled money out of technology, utilities and healthcare/biotechnology sector funds.