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.

Mortgage Market Insights: When Rates Fall, Mortgage Volume Grows

Rene Segura, Mortgage Market Analyst | Joseph Blute, Market Analyst 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.

Deposit Dudes Industry Insights: The End of Stock Trading Fees?

Randy Rosen 17 Jan 2020

The downward trend continues as major brokerage players start to offer commission-free online stock trades As of late, there has been a lot of activity around brokerages and their trading fees. Several big names — Schwab, Fidelity, Interactive Brokers, TD Ameritrade, E-Trade, and Ally — have recently moved to eliminate self-directed stock commission fees and are now offering trades at no charge. This has seemingly been the trajectory since Robinhood came onto the scene in 2013 and started offering commission-free trades.

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.

EPFR Fund Flows

Equity Funds produce the returns in 2019, Bond and Money Market Funds get the cash

By Cameron Brandt 03 Jan 2020

December 2019 ended with the benchmark US equity indexes up between 22% and 35%, the Euro Stoxx 50 sitting on a 26% gain for the year and the MSCI All World Index just off a record high. But anyone looking solely at mutual fund flows would be forgiven for wondering if 2019 had seen a repeat of the economic conditions that defined 2008 and 2009 as investors shunned Equity Funds for Bond Funds, which posted their second full-year inflow record in the past three years, and Money Market Funds which eclipsed the old inflow mark set in 2009. Collectively, the Equity Funds tracked by EPFR gained over 23% during the year versus 7% for all Bond Funds and 0.7% for all Money Market Funds. But, with growing numbers of people entering retirement in North America, Europe and Japan, retail investors saw stock market gains as a chance to cash out positions and rotate their gains to safer vehicles. Demographic trends cut both ways in 2019, with the growing impact of millennial investors – and their preferences – driving record-setting sums into funds with socially responsible (SRI) or environmental, social and governance (ESG) mandate.

EPFR Fund Flows

Hopes for trade and Brexit shape Christmas flows

By Cameron Brandt 27 Dec 2019

EPFR-tracked UK Equity Funds extended their current inflow streak to 11 weeks and $6.5 billion during the week ending on Christmas day as investors responded to the ruling Conservative Party’s pledge to swiftly wrap up the country’s exit from the European Union before the current, third extension expires at the end of January. Hopes an initial trade deal between China and the US will be signed in the next three weeks, meanwhile, kept the money rolling into Emerging Markets Equity and Bond Funds which took in a net $4.2 billion between them. That took their combined total over the past two weeks to $12.1 billion. Although hopes for peace on the Sino-US trade front helped to lift US equity indexes to fresh record highs, US Equity Funds posted their biggest outflow in over a year despite only the second retail inflow since late 2Q17. Overall, the week ending Dec. 25 saw EPFR-tracked Equity Funds experience net redemptions of $14.4 billion, with Dividend Equity Funds posting their biggest outflow since mid-March. Investors also pulled $167 million out of Alternative Funds and $17 billion out of Money Market Funds while steering $740 million into Balanced Funds and another $10.8 billion into Bond Funds. Once again, Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates swam against the tide, adding another $2 billion to their year-to-date total.

EPFR Fund Flows

Progress on trade reflected in flows to EM Funds

By Cameron Brandt 20 Dec 2019

There was plenty for investors to ponder during the third week of December as the US House of Representatives approved articles of impeachment for President Donald Trump, UK voters gave the ruling Conservative Party a clear majority and the outlines of an initial Sino-US trade deal were announced. The announcement of the first step in a phased deal between China and US boosted flows to EPFR-tracked Emerging Markets Equity and Bond Funds. In the case of EM Equity Funds, overall inflows were the biggest since mid-1Q18 as flows into dedicated China Equity Funds hit their highest level in over seven months. Emerging Markets Bond Funds, meanwhile, recorded their biggest inflow since early February. With the Boris Johnson-led Conservatives now in a position to honor their electoral pledge “to get Brexit done”, flows into UK Equity Funds during the week ending Dec. 18 exceeded the $1 billion mark for only the fourth time since the beginning of 2Q18. Investors also pulled over $1 billion out of Europe ex-UK Regional Funds while committing fresh money to regional funds whose mandates encompass the UK. Overall, investors steered $14.8 billion into all EPFR-tracked Equity Funds as those with socially responsible (SRI) or environmental, social and governance (ESG) mandates posted their fourth record high since the beginning of September. Alternative Funds collectively took in $622 million and Bond Funds $6.2 billion. A net $1.19 billion flowed out of Balanced Funds and $48.1 billion from Money Market Funds.

EPFR Fund Flows

Energy Sector: The yin and yang of SRI/ESG

By Vik Srimurthy 19 Dec 2019

Energy Sector: The yin and yang of SRI/ESG If you use social media and the entertainment industry as your filter, it doesn’t take long to identify the two dominant conceptions of what it means to be an energy company. One is the classic, extractive behemoth whose mining, drilling and transportation actives destroy the environment and displace communities and whose business operations are punctuated by explosions, spills and the release of greenhouse gases. The other is technologically cutting edge, focused on renewable sources such as wind, solar and tidal and directed by socially conscious management. 

IGM Credit, IGM FX and Rates

China Insight: Year 2020 - USD/RMB in 6.9-7.2 Range, Phase-2 Deal too Tough for China

By Tim Cheung 17 Dec 2019

Into year end, we continue to see USD/CNH remain highly sensitive to tariff-related news. As far as US-China trade negotiations, we think the phase-one trade deal will get done in January or February if not by the 15 December tariff deadline. At worst, the Trump administration goes ahead with the new tariffs on 15 December and then make a complete rollback once a deal gets done. We don't think a failure to get the phase-one trade deal done by 15 Dec will result in a shutdown of negotiations as both Xi and Trump do not want an escalation of US-China tensions. Our baseline scenario assumes the two sides will agree on a phase-one deal in January or February 2020 if not in December this year with partial or complete rollback of September tariffs, while China will significantly increase US agricultural imports. The rollback in tariffs could be made contingent on China meeting its commitments in the deal. It would likely also include an implicit understanding that China would confine USD/CNY to a tariff-adjusted range. A comprehensive agreement on the more contentious issues of intellectual property rights, technology transfers, and China's industrial policy will likely have to await the second phase of the deal. In our view, the phase-two deal is far more challenging to China than phase-one, so we won't be surprised if it fails to emerge before or even after the US Presidential election in November 2020. We don't expect Washington will agree to roll back the tariffs imposed prior to September unless the phase-two trade deal is worked out. Assuming a phase-one deal is reached sometime over mid-Dec to late-Feb, we expect USD/CNH will likely re-see 6.90 in Q1 amid a stabilisation or even a moderate rebound of GDP growth. Subsequently, the pair will be heading for 7.20 again in H2 (chart 1). We attribute a re-emergence of RMB depreciation pressure in H2 to Beijing's reluctance to reach a very tough phase-two deal with Washington as the US Presidential election approaches and a deterioration of China's growth momentum as we progress into 2H20 (chart 2). From the Chinese leader's perspective, it makes sense to avoid any much tougher deal with the US before the US Presidential election. However, with much stricter capital controls coming into effect in 2020, we don't think runaway RMB depreciation, like we saw in 2016, will re-surface even if China's growth outlook turns gloomy again (chart 3). At worst, any breach of 7.20 will be only temporary and marginal.