EPFR Fund Flows

Equity investors find sectors more compelling the geography

By Cameron Brandt 24 Jan 2020

The Bond Fund bandwagon rolled on during the third week of the New Year, extending a run that has seen them post 55 straight weeks of inflows that total $775 billion. Although flows have moderated since the first week of the year, when this fund group absorbed a record-setting $23 billion, were they to maintain their current weekly average for the rest of the year total inflows would exceed $900 billion. EPFR-tracked Equity Funds, meanwhile, posted consecutive weekly inflows for only the sixth time since the beginning of 3Q19. In geographic terms, the bulk of the fresh money went to the two biggest diversified groups, Global and Global Emerging Markets (GEM) Equity Funds. Investors showed more conviction when it came to sectors, with four of the 11 major groups attracting over $1 billion, and they remain enamored of funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates which chalked up their third weekly inflow record since the beginning of October. Overall, investors steered a net $8.4 billion into Equity Funds during the week ending January 22 with half of that going to SRI/ESG Equity Funds while flows to Dividend Equity Funds hit a YTD high. Balanced, Money Market and Bond Funds absorbed $443 million, $11.2 billion and $16.2 billion respectively.

IGM Credit, IGM FX and Rates

China Insight: Is a SARS Repeat on The Way?

By Tim Cheung 23 Jan 2020

According to the report of the Wuhan Municipal Health Commission, as of Beijing morning 22 Jan 2020, there are more than 400 confirmed cases of the Wuhan coronavirus nationwide. Meanwhile, Taiwan, Korea, Thailand, Japan and the United States also reported confirmed cases of the virus. There are growing fears that an outbreak of the virus will happen across Asia very soon, just like SARS in 2003. Looking at the Wuhan coronavirus outbreak, we find it necessary to draw on some experiences from SARS in 2003 in terms of the possible impact on the China/HK markets in coming months. After all, the genetic sequence of the Wuhan coronavirus is 80% similar to the SARS virus found in bats, civets and humans (as per K.Y. Yuen, the Chair of Infectious Diseases of the University of Hong Kong's Department of Microbiology) and the two syndromes also look very close in terms of the timing of outbreak. The Wuhan coronavirus outbreak is getting worse with more suspected and confirmed cases reported. More importantly, with the mass movement of population for Lunar New Year (LNY) getting underway we inevitably will see a sharp acceleration of transmission over the next 2-3 weeks. As such, we won't be surprised if the number of confirmed cases is already in 4-digit territory by the end of LNY holiday in mainland China. With reference to the pace of growth in the confirmed cases, many experts believe the Wuhan coronavirus now is still in the initial stage of the outbreak. Assuming it develops in a similar manner as SARS did in 2003 (chart 1), we probably will not see the peak of the number of new cases until March or April.      

iMoneyNet - Money Market Fund Analysis

MMF Assets Up for Eighth Consecutive Quarter

22 Jan 2020

Final data for the fourth quarter of 2019 show that assets in U.S. money-market funds increased for the eighth consecutive quarter, confirming preliminary numbers in last week’s Money Fund Report (#2300) that assets in all funds as well as in key Retail and Institutional fund categories for the year just ended increased dramatically, outpacing recent years and positioning the money-fund industry to prosper in the 12 months ahead. Assets in all U.S. funds ended the year at $3,581.4 trillion, a four-quarter increase of $588.4 billion, or 19.7 percent, as the table below shows. Between the third and fourth quarters, all assets increased by 5.5 percent. Taxable funds fared better, growing by $596.0 billion to $3,441.1 trillion, a yearly jump of 20.9 percent, and a Q3-to-Q4 growth of 5.6 percent. For more money-market analysis and insights, reach out to us for more information or a tour of our solutions.

IGM Credit, IGM FX and Rates

China Insight: Property Bonds See Decreasing Net Supply From Now On

By Tim Cheung 21 Jan 2020

Both Chinese property stocks and bonds were doing well in Q4 last year due to an increase in home mortgage loans in percentage terms in the banking sector's aggregate loan portfolio (chart 1). This is largely attributed to a recovery of home demand.      

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Ryan Nauman's Weekly Recap 01.21.20

By Ryan Nauman 21 Jan 2020

The fourth quarter earnings season picks up steam during the upcoming week. As I mentioned above, expectations remain muted for this cycle, however, there are some big names reporting during the upcoming week that should be closely watched. Below are some that I will be focusing on. The upcoming economic data release is light due to the shortened trading week, however, the Markit flash PMIs will be widely watched. Read more from Ryan Nauman's Weekly Recap and subscribe to have it delivered to your inbox each week!

IGM Credit, IGM FX and Rates

The Context 01.20.20

20 Jan 2020

Inside this week’s edition of The Context, Financial Intelligence thought leaders discuss: The EUR Week – Bias is Neutral-Bullish A plethora of firm US data last week, all worked to push Eur/Usd below 1.1100, while positive words from Fed's Harker on growth, a solid start to US earnings season and further subsequent gains for US equity futures had also aided Usd strength. Focus now shifts to the ECB policy decision this week, and we suspect the meeting might be enough to spur a more defiant dip-buying approach. Strengthening CEE Inflationary Pressures Call For Tighter Monetary Policy Tight labour markets and rising consumption have been a supportive factor for CEE inflation and together with firmer oil price pressures, have pushed CPI to the limits of policymakers' tolerance levels and beyond in recent months. Stuck in The Middle China removed from the US FX manipulator list. US Treasuries hardly react. Phase 1 deal signed. Little reaction. Beige Book showing labour shortages (which in theory should push up wages). Nada. Read more from The Context and subscribe to have it delivered to your inbox each week!

Mortgage Market Insights: When Rates Fall, Mortgage Volume Grows

Rene Segura, Market Analysis Manager | Joseph Blute, Market Analysis Manager 17 Jan 2020

As 2019 comes to an end, many mortgage lenders are looking back on a successful refinance-boom across the entirety of the year. The average 30-year fixed mortgage refinance rate has fallen from 5.35% to 3.95% over the last twelve months, while the funded-loan mix has shifted from 28% refinances to 60% refinances. Given that the seasonally adjusted purchase volume is flat year-over-year, this shift represents a 112% increase in total refinance volume from 2018. The interest rate decline has been a surprising reversal from 2018, given that the general expectation was that rates would plateau or continue their rise in 2019. The primary driver of the interest rate shift was the US Federal Reserve Open Market Committee (FOMC) interest rate policy decisions. Following 4 decisions to increase the Federal Funds Rate through 2018, the FOMC chose to keep rates flat through early 2019 before lowering rates beginning July 31 due to weak inflation and business investment. Additional Fed Funds Rate cuts followed in September and October, for a total decrease of 75bps.

EPFR Fund Flows

Equity Funds enjoy broad inflows as Sino-US trade pact signed

By Cameron Brandt 17 Jan 2020

The second week of 2020 saw US President Donald Trump and Chinese Vice Premier Liu He sign the first of what is expected to be a series of trade deals between the world’s two largest economies. It also saw seven of the eight major regional Equity Fund groups tracked by EPFR record inflows that ranged from $228 million for Latin America Equity Funds to $6.3 billion for Global Equity Funds. The renewed appetite for exposure to equities was not fueled by a rotation out of fixed income funds. Although down from last week’s record-setting total, Bond Funds still attracted over $16 billion. Since the beginning of last year, they have compiled a 54-week, $721 billion inflow streak with $495 billion of that total going to US Bond Funds. Overall, EPFR-tracked Equity Funds took in a net $12.5 billion during the week ending Jan. 15, Bond Funds $16.5 billion, Alternative Funds $724 million and Balanced Funds $33 million while $23.8 billion flowed out of Money Market Funds. Investors continue to pour money into funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates, with the latest week’s total the third highest on record. Personal conviction, the benefits of an additional layer of due diligence and solid performance are all factors in the strong run SRI/ESG funds are enjoying.

Commercial banks and fintech companies have an equal stake in the future of banking

Zoya Lieberman 14 Jan 2020

When Apple and Google move into a new area, consumers pay attention. In August, Apple rolled out a consumer credit card with the tagline “Created by Apple, not a bank.” Its customers jumped at the offering: by the end of September, they had taken out credit lines worth $10 billion. Those numbers don’t come from an Apple press release, however. They come from regulatory filings from the actual issuer of Apple’s card—Goldman Sachs. Consumers clearly respond well to the idea of banking with a non-bank entity. This is slowing becoming the new reality in the consumer segment and will eventually move into the business and commercial space. Also known as, Banking as a Service (BaaS), which allows tech companies to build on an existing bank infrastructure. A concrete way for commercial banks to increase market share and exposure by infiltrating into an already established or emerging tech company. Driving both growth and revenue forward exponentially. The Apple Card is by no means a business or corporate card, this may change with time when key features include centralized billing and reporting. However, beyond the laser-etched titanium card and corresponding iPhone app, financial institutions still own the underlying infrastructure. Technology companies clearly aren’t going to supplant banks entirely anytime soon. But that doesn’t mean financial institutions can’t learn a thing or two from their historical frenemies in big tech.

IGM Credit, IGM FX and Rates

China Insight: No Slowdown in Credit Clean-up in 2020

By Tim Cheung 14 Jan 2020

China’s corporate bond sector ended the year 2019 with heightened concerns about defaults. With the bond exchange and tender offers by the Tewoo Group in December marking the first time a Chinese state-owned enterprise has defaulted on its USD bonds in 20 years, we are afraid that China corporate bond defaults will continue to stay elevated in 2020, no better than what we saw over the past two years. We're not surprised by an intensification of credit defaults in 2018 and 2019 given the fact that many private enterprises rushed to issue onshore bonds with a maturity of 2-3 years back in 2016. However, we also attribute the sharp increase in credit defaults over the past two years to China policymakers' intention to prioritize credit clean-up. Simply speaking, the policymakers just let defaults occur as they wanted to see over-levered corporate entities fail and restructure their indebtedness. We don't think the policymakers' attitude will change significantly in 2020. As such, there is a good chance that onshore private enterprises will continue to see their credit spreads staying wide over the next few quarters (chart 1).      

EPFR Fund Flows

Quants Corner

By Vik Srimurthy 14 Jan 2020

In the small hours of January 3, the United States carried out a drone strike on a convoy traveling near Baghdad International Airport. Among the seven people killed instantly was Major General Qasem Soleimani, commander of the Quds Force of the Islamic Revolutionary Guards of Iran. Days later, missiles fired from Iran hit the U.S. Al Asad airbase in Iraq and a civilian aircraft taking off from Tehran was mistaken for a US intruder and engaged by local air defenses, going down in flames with 100% casualties. Geopolitical events such as this have a long history of jolting energy markets. But, with the buffer created over the past decade by US shale oil production muting the classic correlation between events and markets, it requires new quantitative tools to capture the full range of market signals. A tool that we have developed in recent months is a fund-level oil sensitivity factor (OSF), one of many which can be constructed from the EPFR data.

IGM Credit, IGM FX and Rates

The Context 01.13.20

13 Jan 2020

Inside this week’s edition of The Context, Financial Intelligence thought leaders discuss: US High Grade: Bond Issuance Frenzy May Not Last Long The US high-grade bond markets may have ended the week on a euphoric high clocking over $65bln in volume making it the third busiest on record, but this frenzy of debt issuance is unlikely to last beyond a few months, said strategists and bankers. The GBP Week - Bias is Neutral-to-Bearish A look at our dashboard shows BOE H1 rate cut probability up to 63%, a series high following dovish comments from MPCers - Carney, Tenreyro and Vlieghe - in the last week. European FIG Snapshot: Huge Supply Underpinned by Massive Demand While a rush to lock in funding during the early part of January is nothing new, the sheer scale and pace of this year's scramble to do so has taken many by surprise. Read more from The Context and subscribe to have it delivered to your inbox each week!

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Ryan Nauman's Weekly Recap 01.13.20

By Ryan Nauman 13 Jan 2020

Low inflation has been a primary consideration during the Federal Reserve’s monetary easing in 2019, while, the week ahead will give us more insight on the current level of inflation. We will also learn more about the willingness of the U.S. consumer to spend when the retail sales numbers are released on Thursday. Finally, we get our first glimpse at the health of the housing market in 2020, which stabilized in 2019 thanks to lower mortgage rates. Read more from Ryan Nauman's Weekly Recap and subscribe to have it delivered to your inbox each week!

EPFR Fund Flows

Bond Funds kick off 2020 with record inflows

By Cameron Brandt 10 Jan 2020

A single swallow does not make a summer, nor does a single week establish a flow trend. But, after a year when Bond and Money Market Funds both set new annual inflow records while Developed Markets Equity Funds experienced record setting redemptions despite their strong overall performance, 2020 started with Bond Funds setting a new weekly inflow record and Money Market Funds absorbing over $45 billion. Developed Markets Equity Funds, meanwhile, posted their second outflow in the past three weeks. Within the fixed income universe tracked by EPFR, US Bond Funds posted their biggest inflow since 1Q15 and Canada Bond Funds on record. At the asset class level, Municipal Bond Funds also set a new inflow mark while Bank Loan Funds snapped a redemption streak stretching back to mid-4Q18. Investors showed more conviction at the sector level, with 10 of the 11 major groups attracting fresh money. The last time that happened was the second week of October and, before that, 1Q16. Overall, the week ending January 8 saw Bond Funds take in a net $22.5 billion and Money Market Funds $47.2 billion while investors redeemed $93 million from Alternative Funds and $206 million from Balanced Funds. Despite the 11th consecutive weekly inflow for Emerging Markets Equity Funds and the 53rd in a row for funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates, Equity Funds collectively recorded a modest outflow.

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2020 Investment Outlook - Markets Remain Resilient and Provide Opportunities

By Ryan Nauman 07 Jan 2020

2020 Investment Outlook - Markets Remain Resilient and Provide Opportunities 2020 is shaping up to be an eventful year. The headline event will be the presidential election, which is sure to be full of theatrics. Despite the phase one trade agreement, trade uncertainties will continue into 2020. The Federal Reserve will continue to provide headlines as well. Finally, unwrapping Brexit uncertainties will be an issue, while other geopolitical concerns will persist, particularly the protectionist policies. Much like the past few years, uncertainty regarding U.S. and Global fiscal policies will continue. The U.S. presidential election will headline 2020. However, the ongoing trade war, Brexit, Hong Kong protests, and Middle East tensions will continue to drive risk-on and risk-off trades during the year. Regardless, these uncertainties will provide opportunities for patient investors.