Cameron Brandt

EPFR - fund flow & allocations data

Money chases US market highs and China market rout in late July

Going into the final days of July, major US equity indexes were bouncing from record high to record high, buoyed by a strong second quarter earnings season. Meanwhile, China’s benchmark Shanghai Composite Index was recovering from a 6% drop triggered by aggressive Chinese regulatory action against several domestic sectors. Investors saw positives in both trends, committing over $10 billion to US Equity Funds and lifting flows into China Equity Funds to a 15-week high. Elsewhere, Inflation Protected Bond Funds set a new weekly inflow mark, and for the 20th time in the past 22 weeks both of the two major multi-asset fund groups, Balanced and Total Return Funds, posted inflows. With evidence of climate stress abounding, Equity and Bond Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates chalked up the 51st and 70th consecutive inflows respectively. Among the Alternative Fund groups, Bear Funds posted their first weekly inflow quarter-to-date. These funds, which seek to profit from declining markets, saw flows pick up in late 2Q21 as investors started questioning some of the projections for US and global economic growth.

EPFR - fund flow & allocations data

Another week of mixed messages in mid-July

The third week of July saw numerous countries wrestling with severe drought while others, among them China and Germany, counted the costs of massive floods. In the US, where looking-to-hire signs are proliferating in business districts across the country, first-time jobless claims climbed. New cases of Covid-19 worldwide are again north of 500,000 a day but the ratio of deaths has fallen from one in every 42 cases at the end of January to one in every 65 cases. With the needles for many key datapoints swinging rapidly in often contradictory directions, flows to EPFR-tracked funds remained choppy and subdued. Equity Funds recorded their second smallest inflow year-to-date, redemptions from Alternative Funds jumped to a 16-week high, Bank Loan Funds’ longest inflow streak since 1H17 came to an end and four of the five fund groups tied to cyclical sectors posted an outflow. In addition to the twin specters of rising inflation and rebounding Covid-19 caseloads, and their potential impact on the global reflation story, some investors are starting to question the degree to which pent-up consumer demand will drive growth in the second half of the year. In the US, consumers are spending and starting to take on more debt. Retail redemptions year-to-date from US Money Market Funds stand at over $135 billion. But the enhanced unemployment benefits spigot is being closed and is slated to be largely shut off by September. Retail investors are still steering money into Europe Money Market Funds and savings rates throughout the developed world remain above pre-pandemic levels.

EPFR - fund flow & allocations data

Our Financial Intelligence leaders discuss ESG Investing Landscape: What’s Driving Momentum

EPFR - fund flow & allocations data

Investors navigate multiple currents

In a year of multiple – and often competing – economic narratives and themes, the second week of July offered something for everyone. For the reflationary bulls, key equity indexes on both sides of the Atlantic hit fresh record highs as new US childcare tax credits started flowing, the Chinese government cut reserve requirements for domestic banks and the 2Q21 US corporate earnings season got off to a strong start. For inflation hawks, core US inflation in June hit its highest level since 1991. For those betting on a greener future, the European Union unveiled a sweeping plan, Fit for 55, that aims to eliminate petrol-driven vehicles and expand the use of carbon taxes. For those who believe that the Covid-19 pandemic remains the biggest story, infection rates driven by the Delta variant continued to climb. Against this backdrop, flows to EPFR-tracked funds followed the stimulus trail while steering clear of groups where monetary tightening or the ongoing pandemic could have a bigger impact. China Equity Funds posted their first inflow since the second week of June and biggest since the second week of May, Infrastructure Sector Funds extended their longest inflow streak since 2014 and Europe Bond Funds enjoyed record-setting inflows during a week when the European Central Bank announced a new inflation targeting policy. Overall, the week ending July 14 saw all Equity Funds post a collective net inflow of $18.7 billion versus $362 million for Alternative Funds, $2.5 billion for Balanced Funds, $5.6 billion for Bond Funds and an outflow of $30 billion for Money Market Funds.

EPFR - fund flow & allocations data

Delta hitting expectations of alpha in early 3Q21

Flows into EPFR-tracked Bond Funds jumped to a 22-week high in early July as investors, already digesting mixed economic data from the US and China, wrestled with the implications for global growth of the worldwide surge in Covid-19 infections driven by the Delta variant of the coronavirus. The latest spike in Covid cases has already crimped economic activity in China’s Guangzhou province, raised the specter of a second lost tourist season for Europe and prompted Japan to reimpose a state of emergency in Tokyo. It is also giving US consumers and businesses another reason to be cautious about spending the capital and savings they stockpiled during the pandemic. The US personal savings rate remains well above its pre-pandemic level and much of the cash that flowed into EPFR-tracked US Money Market Funds last year is still there.

EPFR - fund flow & allocations data

Quants Corner - Growth vs Value in 2Q21: Chasing under-performance?

Tech is back! After five months of some ups and more downs, the month of June has been kind to the technology sector. From the mid-May low, the NASDAQ has outperformed the S&P 500 by almost 7%. If we look in smart beta terms, Growth has outperformed Value by around 11.5% over the same period. Read more...

EPFR - fund flow & allocations data

A question of growth going into 2H21

For much of the year-to-date the question of just how much inflation recovering economies will generate, and just how transitory that inflation will be, has occupied investors. As the second quarter wound down, however, another question has intruded: what if it is the economic growth that is transitory? With China’s economy feeling the pinch from some modest policy tweaks and the US Federal Reserve signaling that interest rates could start to rise at least a year earlier than previously expected, Commodities Sector Funds ended June by posting consecutive weekly outflows for the first time in over eight months while Industrial Sector Funds extended their longest redemption streak since 1Q20 and investors pulled money out of China Equity Funds for the fourth time in the past six weeks. The specter of rising prices and visions of a greener future continued to influence flows going into the second quarter. Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates extended an inflow streak that started in mid-August of last year, Bank Loan Funds posted their 26th consecutive inflow and Inflation Protected Bond Funds absorbed fresh money for the 32nd week running. The week ending June 30 also saw EPFR-tracked Dividend Equity Funds record their eighth straight inflow, their longest such run in over six years, as investors positioned themselves for increased US and European bank dividends after those banks successfully navigated the latest round of stress tests. The latest run of positive flows to US Dividend Funds comes at a time when the average dividend yield for companies in the S&P 500 index has dropped to 1.3%.

EPFR - fund flow & allocations data

Regulators turn their sights on ESG ratings agencies

EU and UK regulators are planning to scrutinize the role and transparency of environmental, social and governance (ESG) ratings providers. It is a potential can of worms, but they must open it. As ESG investments keep growing in popularity, many fund managers and financial advisers rely on ratings providers when picking funds and shares. Dramatic demand for these assets shows no sign of abating — socially responsible and ESG equity funds have just posted their 24th weekly inflow so far this year, according to EPFR data...

EPFR - fund flow & allocations data

Out with the old, in with the other

In the financial world, the search for the ‘new normal’ started in the aftermath the great financial crisis as central banks unleashed unprecedented levels of quantitative easing on global asset markets. Among hedge funds, those offering established strategies – long/short, commodity trading, multi-strategy – have seen modest asset growth over the past decade while those offering something different have fared much better...

EPFR - fund flow & allocations data

Hedge funds (finally) benefiting from the search for alternatives

The renewed financial repression stemming from the round of extraordinary policy measures unveiled last year to mitigate the impacts of the Covid-19 pandemic spurred investors to take another look at alternative asset classes and investment strategies. EPFR-tracked Alternative Funds have recorded inflows 47 of the 61 weeks since the start of 2Q20. Over that period the assets managed by Alternative Funds increased by over a fifth...

EPFR - fund flow & allocations data

Fund groups feel the squeeze as China tightens

Signs, ranging from an appreciating currency to rising junk bond yields, that Chinese authorities are making good on pledges to normalize economic policy and wring speculative excesses from the world’s second largest economy caught the attention of investors during the third week of June. China Equity and Bond Funds both experienced net redemptions, as did Commodities and Energy Sector Funds, while Emerging Markets Equity Funds extended their longest outflow streak since mid-3Q20 and Emerging Markets Bond Funds posted their second largest outflow year-to-date. US Equity and Bond Funds both absorbed fresh money, but flows were subdued as markets worked through a “quadruple witching” –when stock index futures, stock index options, stock options and single stock futures all expire on the same day – and parsed the US Federal Reserve’s statements about inflation during and after its June meeting. Growing concern about the chances the Delta variant of the Covid-19 virus will fuel another wave in the current pandemic also weighed on a range of fund groups.

EPFR - fund flow & allocations data

Rose-colored glasses proliferate in mid-June

Ahead of the Federal Reserve’s June policy meeting, investors shrugged off the highest monthly inflation number for the US in over a decade and steered over $35 billion into EPFR-tracked US Equity and Bond Funds as the yield on 10-year Treasuries dropped below 1.5%. Over the same period US Money Market Funds posted their largest outflow year-to-date.

EPFR - fund flow & allocations data

Investors still searching for that elusive fix

What narrative to back? The developed markets reflation story? An increasingly green future? A fairytale financial universe populated by cryptocurrencies and meme stocks? A gothic novel featuring higher taxes, inflation and state intervention? The search for direction during the first week of June saw investors commit over $5 billion to the two major EPFR-tracked multi asset fund groups, increase their exposure to Europe’s gathering rebound, add to their inflation hedges and extend lengthy inflow streaks for a number of fund groups with socially responsible (SRI) or environmental, social and governance (ESG) mandates. US Equity Funds, however, saw their record-setting run of inflows come to an end as the focus shifted from America’s strong growth to May’s headline inflation number – it came in at 5%, the highest since 2008 – and the higher taxes that currently seem inevitable. Municipal Bond Funds saw flows hit a 17-week high as they recorded their 22nd inflow year-to-date, TIPS Bond Funds racked up their 36th consecutive inflow and US Bank Loan Funds absorbed fresh money for the 23rd straight week. Overall, EPFR-tracked Bond Funds recorded a collective inflow of $12.4 billion during the week ending June 9. Equity Funds took in a net $1.5 billion, a number that would have negative but for flows into SRI/ESG Funds, with Dividend Equity Funds posting their 13th inflow in the past 15 weeks. But YTD net flows into all Equity Funds have already exceeded the current full-year record of $358 billion set in 2013. Three out of every four dollars committed by equity investors so far this year have gone to Equity ETFs.

EPFR - fund flow & allocations data

Oiling the wheels of inflation?

The final days of May and first two of June did little to help investors reconcile the tension between the US reflation story and signs that inflationary pressures are building in the world’s largest economy. With US President Joe Biden’s first budget proposal calling for an 18% jump from the current fiscal year’s budget to $6 trillion in FY22, with well over $1 trillion of that borrowed, and the price of oil hitting a one-year high the case for both outcomes received a boost during the week ending June 2. Investors responded by adding to their exposure to US assets and boosting their inflation hedges. Flows into Commodities Sector Funds hit a 14-week high, the current inflow streak for Inflation Protected Bond Funds hit 28 weeks and $50 billion, US Equity Funds absorbed fresh money for the 10th straight week – their longest such run since EPFR started tracking them in 4Q00 – and US Bond Funds recorded their 60th inflow since the beginning of 2Q20. Europe’s accelerating recovery currently offers a developed market rebound story with much lower inflation expectations. Europe Equity Funds extended their longest inflow streak since 4Q17 and Europe Bond Funds chalked up their 11th inflow in the past 12 weeks. Overall, the week ending June 2 saw EPFR-tracked Equity Funds record a collective inflow of $14.7 billion. Alternative Funds pulled in $738 million, Balanced Funds $1.8 billion, Bond Funds $11.7 billion and Money Market Funds $16.2 billion.

EPFR - fund flow & allocations data

Assets continue to build up in US Money Market Funds

While pent-up consumer demand and catch-up business investment have been key assumptions behind the US reflation story, one reservoir of fuel for this narrative continues to fill up. During the week ending May 26, flows into EPFR-tracked US Money Market Funds hit a 51-week high, lifting year-to-date inflows to these liquidity vehicles over the $300 billion mark. Investors remain torn between the eye-popping rebound in US economic growth, bolstered by epic levels of fiscal stimulus and expectations that the combination of current vaccinations and past infections will add up to ‘herd immunity’ against Covid-19 by 3Q21, and fears this rebound will lift inflation – and inflationary expectations – to disruptive heights. US Equity Funds recorded their 15th inflow in the past 16 weeks while Bank Loan and Inflation Protected Bond Funds absorbed fresh money for the 21st and 27th consecutive week respectively and flows into Gold Funds hit a 35-week high.