What EPFR data tells us about the likelihood of greater volatility

The second week of January saw Americans mourning their 39th president, watching in horror as large swathes of Los Angeles burned and – along with the rest of the world – positioning themselves for the return of Donald Trump to the White House. Against this backdrop, which also included better-than-expected inflation figures from the US and UK, investors steered another $20 billion into US Equity and Bond Funds, rotated from cryptocurrencies to gold, responded strongly to the first round of financial sector earnings reports and pulled over $1.8 billion from Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates.

A damn-the-torpedoes spirit gripped investors during the first week of the New Year.

Faced with bond vigilantes stampeding UK sovereign yields and year-ahead forecasts devoting space to overheated US valuations, the impact of tariffs on inflation and trade, China’s slowing economic growth, rising corporate defaults and the vast borrowing requirements of most leading economies, investors responded in contrarian fashion. They steered over $10 billion into both US Equity and Bond Funds while flows into China Equity and High Yield Bond Funds climbed to four and seven-week highs, respectively.

The first two months of 2024 saw Japan, India, Technology and China Equity Funds absorb a net $5.2 billion, $10.7 billion, $14.1 billion and $44.6 billion, respectively, while US Equity Funds pulled in a minimal $3.4 billion. During the final two months of last year, however, US Equity Funds added $174 billion as they set a new full-year inflow record while flows to the other groups ranged from an outflow of over $10 billion for Japan Equity Funds to an inflow of $2.2 billion for China Equity Funds.