While the Fed’s incoming head Janet Yellen told a US Senate committee during its October meeting that benefits of the current quantitative easing programme still outweighed the costs, the same meeting ended with investors digesting minutes from the Fed’s October meeting which suggested the decision to ‘taper’ QE could be made in “the next few meetings.”
Flows into EPFR Global-tracked equity and bond funds during the week ending November 20, mirrored this uncertainty.
According to the report, a sharp moderation in the pace of redemptions from emerging markets equity funds and flows into US bond funds hitting a 17 week high were "consistent with expectations that a Yellen-led Fed will err on the side of caution when it comes to scaling back quantitative easing".
However, the report notes that "lacklustre flows into US equity funds, another week of $1bn plus outflows from emerging markets bond funds and a pick-up in the pace of redemptions from gold funds, all support a more hawkish view of the Fed’s intentions".
Overall, EPFR Global-tracked equity funds took in a net $6.04bn for the week and bond funds $2.88bn.
Money market funds posted collective inflows of $1.17bn as redemptions from US money market funds were narrowly offset by commitments to their global, Japanese and European counterparts.
At a country level, Japan equity funds posted their biggest weekly outflow in over two years, Spain bond funds had their second best week on record and Brazil bond funds snapped an outflow streak stretching back to late January.
Other key points:
- Europe equity funds remain on track for a new full year inflow record as they took in another $1.93 bn, their twenty-first consecutive weekly inflow, as some investors began to pencil in more easing by the European Central Bank to combat deflation.
- France equity funds saw outflows climbing to a seven week high in the wake of another ratings downgrade and data showing the Eurozone’s second largest economy could be back in recession by the end of the year.
- Investors and fund managers are still interpreting the economic road map China’s leadership plans to follow. But initial impressions have been positive and China equity funds took in fresh money for the seventh time in the past eight weeks.
- Fund groups dedicated to the other three BRIC (Brazil, Russia, India) markets did not fare so well, with $135mn flowing out of Russia equity funds and $226mn out of Brazil equity funds while BRIC equity funds extended an outflow streak stretching back to the first week of November, 2012.
- Other emerging markets are attracting money: Frontier markets funds took in fresh money for the eleventh time in the past 12 weeks and funds under the CIVIETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and MINT (Mexico, Indonesia, Nigeria and Turkey) umbrellas both posted net inflows.
- Flows for the 11 major EPFR Global-tracked Sector Funds remained subdued during the third week of November although, with the Christmas shopping season looming, flows into consumer goods and technology sector funds hit three and five week highs respectively while industrial sector funds took in another $313mn.
- Financial sector funds managed to post modest inflows with Europe regional financial sector funds taking in fresh money for the seventh straight week.
- Redemptions from real estate sector funds hit a six week high even though Japan real estate Funds extended an inflow streak stretching back to mid-July.