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.      

Mortgage Market Insights: When Rates Fall, Mortgage Volume Grows

By 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

By 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).