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Dealing with inflated expectations

Expectations for economic growth, US job creation and the transitory nature of inflation all took a knock during the second week of October as supply chain issues and rising energy prices continue to bite. Headline inflation for the US in September exceeded 5% for the third month running while new job creation was less than half of the expected total while the IMF trimmed another 0.1% off its global growth forecast.

Investors responded by beefing up their exposure to inflation protected securities, pulling money out of the riskier fixed income fund groups and positioning themselves for short-term gains driven by the latest corporate earnings season. Both High Yield and Emerging Markets Bond Funds saw over $1.5 billion redeemed during a week when commitments to Inflation Protected Bond Funds hit an 11-week high.

Overall, the week ending Oct. 13 saw EPFR-tracked Bond Funds post a collective net inflow of just $77 million. Equity Funds took in $11.8 billion, with a third of that total going to funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates, and Balanced Funds absorbed $1.4 billion.

 

 

 

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  • EPFR - fund flow & allocations data

    Turkey for Thanksgiving, Omicron for Christmas?

    By Cameron Brandt 29 Nov 2021

    EPFR

    Heading into the US Thanksgiving holiday, Turkey’s defiance of economic policy norms and surging Covid-19 caseloads in Europe claimed the attention of markets and investors. The day after, the emergence of a new Covid variant in South Africa with significant mutations – dubbed Omicron -- triggered a selloff in global equity and commodity markets. With Covid regaining center stage, much of the US on holiday and many central banks rummaging around in their inflation containment toolkit, flows to most EPFR-tracked fund groups were understandably muted during the week ending November 24. Equity Funds recorded their third-smallest collective inflow year-to-date and flows into Bond Funds were a quarter of their weekly average during the first three quarters of 2021. The prospect of a greener, more expensive future continued to influence flows. Commitments to Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates accounted for the bulk of headline number for all Equity Funds, Inflation Protected Bond Funds posted their 53rd consecutive inflow and Cryptocurrency Funds absorbed fresh money for the 14th week running. Overall, the fourth week of November saw $2.9 billion flow into all Equity Funds and $4.2 billion into Bond Funds while Alternative Funds pulled in $1.6 billion and Balanced Funds $2 billion. Money Market Funds took in $7.8 billion as they extended their longest run of inflows since the second quarter.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Shivers run through Europe and Japan as supply chains rattle

    By Cameron Brandt 19 Nov 2021

    GNN

    The Japanese economy’s 3% contraction during the third quarter and the latest spike in natural gas prices pushed supply chain issues to the top of a lengthy list of investor concerns going into the second half of November. In the case of natural gas, the supply chain linking Europe with an increasingly assertive Russia is back in the spotlight. EPFR-tracked Europe Equity Funds posted their sixth outflow in the past nine weeks and Energy Sector Funds experienced their heaviest redemptions since mid-August as Russian troops built up along the Ukrainian border, Germany suspended certification of the Nord Stream 2 pipeline and the price of natural gas jumped to a four-week high. Tight energy supplies are a headwind for Japan, which imports nearly all of the oil it uses, and bread-and-butter supply chain issues ranging from lock downs in China to global shipping backlogs are also taking a toll. Japan Equity Funds recorded their biggest outflow since early March during the week ending Nov. 17.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Earnings and inflation both roar in early November

    By Cameron Brandt 12 Nov 2021

    GNN

    Four out of five US companies that have reported third quarter earnings exceeded consensus expectations. Meanwhile, three out of five US businesses report they raised prices in the past 90 days as headline inflation climbed to a 31-year high of 6.2% in October. Celebrate the pricing power of US companies? Accept that the Federal Reserve is behind the curve and allocate accordingly? Cling to the official narrative that inflation is transitory and will ebb as supply catches up with demand? Go green? Investors during the first week of November found themselves, as has been true for much of 2021, trying to square off a bewildering range of circles. From a fund flow perspective, the week ending Nov. 10 saw groups and themes that have fared well for most of 2021 continue to attract fresh money. Inflation Protected Bond Funds extended their current inflow streak to 51 weeks and $87 billion, Global Equity Funds extended a run of inflows stretching back to late 1Q20 and US Bond Funds took in fresh money for the 83rd time in the past 84 weeks. Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates pulled in over $5 billion and SRI/ESG Bond Funds posted a new weekly inflow record. Also hitting new highs were exchange traded funds (ETFs). Assets parked in the ETFs tracked by EPFR now exceed $10 trillion. These funds, which passively track an index, commodities or baskets of other assets and can be traded on stock exchanges, came into 2020 having hit the $7 trillion mark in early 4Q20. Since then, the pace of inflows has accelerated dramatically. Equity ETFs now account for a quarter of the assets held by all Equity Funds while 15% of all Bond Fund assets are lodged in ETFs.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Investors feel the heat in early November

    By Cameron Brandt 08 Nov 2021

    GNN

    The twin specters of inflation and the planet running hotter occupied investors going into November as the UN climate summit, COP26, got underway and central bankers in the US and UK met. SFlows to EPFR-tracked funds during the week ending Nov. 3 reflected the general focus on these themes. Ahead of the US Federal Reserve spelling out the tapering of its current asset purchasing program, at the rate of $15 billion a month, and the Bank of England’s Nov. 4 policy meeting, flows continued to rotate from fixed income to Equity Fund groups. During 3Q21, Bond Funds recorded an average weekly inflow of $16 billion versus $14 billion for Equity Funds. So far this quarter, flows into Equity Funds have averaged $20.5 billion versus $5 billion for Bond Funds. Investors looking for protection from inflation, or ways to keep ahead of its effects, also steered over $2 billion into Inflation Protected Bond Funds for the third time in the past four weeks, extended the current inflow streaks of Bank Loan, High Yield and Cryptocurrency Funds and boosted flows into Commodities Sector Funds to a 20-week high. Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates, meanwhile, chalked up their 65th consecutive inflow and largest since the second week of July. Year-to-date they have taken in twice as much money, in dollar terms, compared to their non-SRI/ESG counterparts. In % of AUM terms the gap is even more pronounced.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Chasing earnings and keeping powder dry

    By Cameron Brandt 29 Oct 2021

    GNN

    With four out of five US companies reporting third quarter earnings that beat expectations, US equity markets climbed to fresh record highs during the fourth week of October. Mutual fund investors climbed aboard the earnings bandwagon, steering $28 billion into EPFR-tracked Equity Funds. While focusing on the positive, however, those investors also shored up their defenses against inflation and the new taxes that may or may not emerge from the spending bills being pushed by US President Joseph Biden’s administration. Inflation Protected Bond Funds posted their second-largest weekly inflow so far this year, Bank Loan Funds took in fresh money for the 42nd time in the 43 weeks year-to-date and Cryptocurrency Funds chalked up their second record inflow since the beginning of the month. Staying close to cash proved popular, with Money Market Funds recording their biggest collective inflow since the fourth week of 2Q20. Overall, flows into those liquidity funds during the week ending Oct. 27 totaled $79.7 billion. Equity Funds absorbed $28 billion, Bond Funds $8.6 billion, Balanced Funds $2.4 billion and Alternative Funds $1.8 billion.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Earnings growth wrestles inflation for control of market narrative

    By Cameron Brandt 26 Oct 2021

    GNN

    Rising prices and higher-than-expected earnings shaped investor sentiment during the third week of October. Most of the companies reporting their 3Q21 numbers surpassed expectations. But their reports and forecasts were qualified by the shortages, input cost increases and supply chain issues they are facing. Investors responded by pouring nearly $25 billion into EPFR-tracked Equity Funds, with 10 of the 11 major Sector Fund groups recording inflows for the week, and by stepping up their search for inflation protection. Bank Loan and Inflation Protection Funds took in over $1 billion apiece, and Cryptocurrency Funds extended their current inflow streak.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Quants Corner - Trick? Treat? Or contrarian FX signal?

    By Vik Srimurthy 20 Oct 2021

    QC

    In late October the mind – at least in the US – turns to brews, potions and mixtures as Halloween looms and faux witches cauldrons dot suburban lawns. Read more...

    Topic Industry News

  • EPFR - fund flow & allocations data

    Dealing with inflated expectations

    By Cameron Brandt 15 Oct 2021

    Global Nav

    Expectations for economic growth, US job creation and the transitory nature of inflation all took a knock during the second week of October as supply chain issues and rising energy prices continue to bite. Headline inflation for the US in September exceeded 5% for the third month running while new job creation was less than half of the expected total while the IMF trimmed another 0.1% off its global growth forecast. Investors responded by beefing up their exposure to inflation protected securities, pulling money out of the riskier fixed income fund groups and positioning themselves for short-term gains driven by the latest corporate earnings season. Both High Yield and Emerging Markets Bond Funds saw over $1.5 billion redeemed during a week when commitments to Inflation Protected Bond Funds hit an 11-week high. Overall, the week ending Oct. 13 saw EPFR-tracked Bond Funds post a collective net inflow of just $77 million. Equity Funds took in $11.8 billion, with a third of that total going to funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates, and Balanced Funds absorbed $1.4 billion.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Caution reigns in early October

    By Cameron Brandt 08 Oct 2021

    Global Nav

    The first week of October saw US lawmakers sparring over the country’s debt ceiling, authorities in China scrambling to limit the wider damage property giant Evergrande’s debt crisis may cause, and central bankers from Canada to Poland wrestling with the tradeoff between economic growth and rising prices. Faced with this unappealing cocktail, investors’ risk appetite slipped several notches during the first week of October. High Yield Bond Funds posted their first outflow since the second week of July, Emerging Markets Bond Funds experienced net redemptions for the third straight week and over $1.2 billion flowed out of Alternative Funds while Inflation Protected Bond Funds absorbed over $1 billion for the third time in the past four weeks. Appetite for exposure to socially responsible (SRI) or environmental, social and governance (ESG) themes remains strong. SRI/ESG Equity Funds extended an inflow streak stretching back to mid-3Q20 and year-to-date flows into SRI/ESG Bond Funds climbed past the $79 billion mark. Dedicated Cryptocurrency Funds also remained popular, with flows the highest in over four years, during a week when US officials said they have no plans to ban digital currencies.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Betting on big markets in late September

    By Cameron Brandt 01 Oct 2021

    GNN

    The third quarter of 2021 ended with investors continuing to whistle in the dark, committing fresh money to EPFR-tracked Equity and Bond Funds despite multiple risks to global growth. These include political brinkmanship over the US debt ceiling, the energy squeeze hitting China and parts of Europe, the winding down of programs implemented to buffer the initial shock of Covid-19, the pandemic’s evolution and the sustained rise in both producer and consumer prices. The final week of September saw Equity Funds pull in another $9.1 billion, capping their fourth consecutive quarterly inflow, while Bond Funds attracted another $7.9 billion that lifted their year-to-date total north of the $670 billion mark. Both groups have now exceeded the totals for their full-year records, set in 2013 and 2019 respectively.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Quants Corner - The utility of water has never been clearer

    By Vik Srimurthy 17 Sep 2021

    QC

    EPFR’s data can be filtered in dozens of ways, including sifting through lists of individual funds to create bespoke groups. A recent example is the selection of utility sector funds with water mandates into a custom group. As it happens, these funds are in focus and in demand. With water getting scarcer in many parts of the world, governments boosting budgets for “green” infrastructure and water’s key role in next generation industries – by some estimates the average semiconductor plant requires over 3 million gallons of clean water a day – investors see both need and opportunity. Read more...

    Topic Industry News

  • EPFR - fund flow & allocations data

    Bears remain in hibernation as fall approaches

    By Cameron Brandt 17 Sep 2021

    Global Navigator

    Flows into EPFR-tracked Equity Funds jumped to a 26-week high in mid-September as investors continue to shrug off all manner of threats to the best-case scenarios for the US, European, Chinese and global economies. The investment case for the US appears particularly resilient. Despite headline inflation coming in north of 5% again during August, the constraints of the current debt ceiling, the administrations push for over $2 trillion in tax hikes, average new Covid-19 cases climbing to a level last seen in late January and an emerging consensus that the Federal Reserve will start (cautiously) tapering its bond purchases later this year, investors committed over $50 billion to US Equity and Bond Funds during the week ending Sept. 15. Those investors also showed less appetite for staying close to cash. US Money Market Funds saw $45.6 billion billion redeemed, their biggest weekly outflow since late 4Q20. Meanwhile, some US MM Fund providers are tapping into the broad appetite for exposure to socially responsible (SRI) or environmental, social and governance (ESG) principles. After a lull stretching from the third quarter of last year into April, flows to US SRI/ESG Money Market Funds have gained momentum each of the subsequent months, hitting a 13-month high in August.

    Topic Industry News

  • EPFR - fund flow & allocations data

    No let-up in fund flows despite latest headwinds

    By Cameron Brandt 10 Sep 2021

    GNN

    On September 6, enhanced unemployment benefits ended for millions in the US and the seven-day moving average for new Covid-19 cases worldwide stood at 616,000. On Sept. 7, Australia’s central bank confirmed the tapering of its bond buying program and troubled Chinese property developer Evergrande was hit with its second ratings downgrade in as many days. On Sept. 8, former US Fed Chair Janet Yellen warned that the latest debt ceiling impasse could trigger a default in as soon as October. On Sept. 9, as the European Central Bank met to discuss its response to inflationary pressures, EPFR’s latest data showed that $25 billion flowed into the Equity and Bond Funds it tracks during the first week of September. As they have for much of this year, investors allocated to the global rebound, Covid-clipped wings notwithstanding, the consensus on combating climate change, consumers in the world’s two largest economy and the profitability of major corporations. They have largely discounted tighter monetary policy, a return to widespread lockdowns and geopolitical shocks. Going into the second week of September, year-to-date flows to EPFR-tracked Alternative, Balanced, Bond and Equity Funds stood at 35%, 53%, 91% and 197% of their full year records. Among the country, thematic, sector and asset class fund groups on track to set new inflow records are Inflation Protected, SRI/ESG Equity and Bond, Infrastructure and Consumer Goods Sector, China Bond and US Equity Funds.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Gravity remains on holiday in late August

    By Cameron Brandt 03 Sep 2021

    Global Nav

    Investors responded to signals that tapering of bond purchases by the US Federal Reserve could well start later this year and the partisan sparring over the debt ceiling by steering over $19 billion into EPFR-tracked US Equity and Bond Funds during the final week of August. Growing concern that China’s efforts to cool its property sector will deliver a blow to both Chinese and global economic growth, meanwhile, did not stop China Equity Funds absorbing $3.3 billion. Going into September, mutual fund investors continue to put their faith in US corporate earnings growth, central bank accommodation and a much greener future. While taking out some protection against higher inflation – Inflation Protected Bond Funds have taken in nearly $70 billion over the past 41 weeks – their response to the boost in Covid-19 cases driven by the Delta variant, political tensions in the Middle East and Asia, concerns about the trajectory of global growth and the impending end of Angela Merkel’s tenure in Germany has been muted. The latest week, ending Sept. 1, saw EPFR-tracked Equity Funds post collective inflows of $19 billion as the year-to-date total for Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates hit 108% of the full-year record set in 2020. Alternative Funds pulled in $1.3 billion, Balanced Funds $1.9 billion and Bond Funds $12.7 billion while $22.9 billion flowed out of Money Market Funds.

    Topic Industry News

  • EPFR - fund flow & allocations data

    Flows following key indexes higher

    By Cameron Brandt 27 Aug 2021

    Global Nav

    The week ending August 25 saw EPFR-tracked Equity Funds post their 35th straight inflow, taking their year-to-date total up to 186% of the full-year inflow record set in 2013. Faced with a crowded slate of variables ranging from the resurgence of Covid-19 infections through the crisis in Afghanistan to the possibility that the US Federal Reserve will start scaling back its bond buying program later this year, investors focused on the positives – strong corporate earnings, high levels of fiscal stimulus – and the buoyant effect these positives are having on benchmark indexes. While Exchange Traded Funds (ETFs) with equity mandates have attracted substantially more money than mutual funds so far this year, the split for all fund groups YTD is almost exactly 50-50. Total assets managed by all EPFR-tracked ETFs, having breached the $9 trillion mark in early June, currently stand at $9.5 trillion.

    Topic Industry News

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