Investors returning from the summer holidays in early September ran into a sobering cocktail of political and sovereign credit risk, weak US labor market data and mixed corporate earnings as they looked ahead to the Federal Reserve’s next policy meeting and the rate cut it is expected to deliver.
They responded during the week ending Sept. 10 by steering over $65 billion into Money Market Funds and over $15 billion into Bond Funds, extending Physical Gold Funds’ current inflow streak to three weeks and $11 billion total, and committing a combined $13.8 billion to the diversified Global and Global Emerging Markets (GEM) Equity and Bond Funds.
On the other side of the ledger, US Equity Funds chalked up their third largest outflow of the year-to-date, Bank Loan Funds posted their first outflow since mid-June and their biggest since the second week of April, Leveraged Equity Funds saw over $3 billion flow out and redemptions from funds tied to two of the year’s dominant themes, artificial intelligence and defense, climbed to 22 and 44-week highs, respectively.
Of the flows into all Money Market Funds, more than four fifths were absorbed by US Money Market Funds which saw their YTD total approach the $450 billion mark. The average maturity of US Money Market Fund portfolios continues to creep up while average yields slide. At the end of August, the average seven-day yield for US Government Money Market Funds was at its lowest level since January 2025 while the weighted average maturity (WAM) of the group’s assets is at its highest level – 43 days – since 1Q21.
At the country and regional fund levels during the latest week, flows into Africa Regional Bond and Equity Funds hit levels last seen in 3Q24 and mid-3Q21, respectively, New Zealand Equity and Bond Funds both experienced record-setting redemptions, Thailand Equity Funds extended an outflow streak stretching back to early last year and investors pulled over $3 billion out of Turkey Money Market Funds.
Emerging Markets Equity Funds
Solid flows into Global Emerging Markets (GEM) Funds, which came in at a nine-week high, enabled EPFR-tracked Emerging Markets Equity Funds to extend their current run of inflows. Positive flows to Latin America and EMEA Equity Funds also contributed to the week’s headline number, offsetting net redemptions from all of the major Asia ex-Japan Country Fund groups. Retail share classes of all EM equities recorded an inflow for the first time since early June and for only the second time over the past 13 months.
So far this year, Emerging Markets Equity Funds have collectively outperformed their developed markets counterparts by over 400 basis points while, at the country level, China Equity Funds have outperformed US Equity Funds by 880 basis points.
During the current quarter, foreign investors started to chase the gains generated by mainland China-mandated funds. Coming into September, overseas-domiciled China Equity Funds had recorded eight inflows over the past 10 weeks. During the latest week, however, redemptions from those funds hit their highest total since the second week of April ahead of data showing deflationary pressures in the world’s second largest economy have yet to be contained.
Foreign-domiciled Korea Equity Funds also recorded net redemptions that fed into the biggest outflow from all funds in 13 weeks. But sentiment was boosted at week’s end by the government’s decision to shelve a mooted increase in the capital gains tax on stocks, and from signs the country’s central bank will resume cutting interest rates before the end of the year.
For the second week running both Brazil and Mexico Equity Funds enjoyed solid inflows, with investors – for the moment – discounting the possible political fallout from former Brazilian President Jair Bolsonaro’s trial – and subsequent conviction – on charges of planning a coup. But another political shock, the victory by opposition Peronists in Buenos Aires municipal elections, shook confidence in Argentine President Javier Milei’s ability to pursue his reform agenda. Redemptions from Argentina Equity Funds jumped to a seven-week high.
Saudi Arabia Equity Funds were again the biggest driver of the headline number for all EMEA Equity Funds.
Developed Markets Equity Funds
Concerns about the Eurozone’s largest economies, some mixed corporate earnings and questions about US economic strength kept the lid on flows to EPFR-tracked Developed Markets Equity Funds during the week ending Sept. 10. Another week of solid flows into Global Equity Funds and the modest inflows recorded by Europe, Canada, Australia and Japan Equity Funds were not enough to cancel out the more than $19 billion redeemed from US Equity Funds.
Although Europe Equity Funds tallied their 26th inflow of the year so far, investors are less bullish about the regional rearmament story behind those flows. The collapse of France’s latest government in the face of growing fiscal problems, and the trade and energy headwinds facing Germany’s industrial base – particularly its automotive sector – have raised questions about the funding and implementation of a major regional rearmament story. The latest week saw money flow out of France Equity Funds for the ninth time during the past 10 weeks and redemptions from Germany Equity Funds hit a 15-week high.
However, funds dedicated to Spain and Italy, two of the biggest beneficiaries of the European Union’s €750 billion post-covid recovery fund fared better. Flows into Italy and Spain Equity Funds climbed to eight and 17-week highs, respectively.
Among the Asia Pacific Country Fund groups, Japan Equity Funds posted consecutive weekly inflows for the first time since mid-May. But the week ended with the biggest daily outflow since August 22 as investors digested Prime Minister Ishiba Shigeru’s decision to resign. Elsewhere, New Zealand Equity Funds posted a record outflow tied to one fund. A single fixed income fund offered by the same provider accounted for the parallel outflow record set by New Zealand Bond Funds.
Foreign-domiciled US Equity Funds recorded their 12th inflow over the past 15 weeks, but that was not enough to offset domestic redemptions during a week when the US dollar spent its 20th straight week at the bottom of EPFR’s G10 Currency Rankings model and revisions to recent jobs reports saw over 200,000 jobs erased.
Global sector, Industry and Precious Metals Funds
Buoyed by investor appetite for both direct and indirect exposure to gold, EPFR-tracked Commodities Sector Funds topped the list of major Sector Funds attracting fresh money during the first full week of September. They were one of the eight groups that recorded an inflow, while Real Estate, Telecoms and Energy Sector Funds posted outflows ranging from $87 million to $219 million.
Of the more than $1.5 billion absorbed by Commodities/Materials Sector Funds, flows into funds with gold or precious metals accounted for over a third of the headline number as the price of gold climbed to fresh record highs. Physical Gold Funds, which sit in the Alternative Funds universe, took in another $3.6 billion.
Technology Sector Funds extended their current inflow streak despite the fourth collective outflow from mainland China-mandated funds since the second week of August. Of the top 10 individual funds ranked by inflows for the week, five were wholly or partly dedicated to internet plays.
A punishing run for Healthcare/Biotechnology Sector Funds that began in late 2022 appears to have ended, at least for now. The group took in fresh money for the fifth straight week, extending its longest inflow streak since 2Q23.
Infrastructure Sector Funds continue to attract healthy inflows. The group last tallied an outflow during the third week of April as investors, with an eye on the vast sums being spent on artificial intelligence, position themselves to benefit from the data centers, power sources and other infrastructure needed to realize AI’s potential.
Bond and other Fixed Income Funds
EPFR-tracked Bond Funds saw year-to-date inflows climb within striking distance of the $600 billion mark during the week ending Sept. 10 as investors put their preference for stability ahead of the risks building up in some areas of the fixed income universe.
Concerns about the ability and willingness of the British and French political classes to at least slow their countries growing indebtedness did not stop Europe Bond Funds from posting their 32nd inflow of the year. The headline number was, however, the second lowest since mid-April during a week when France’s latest minority government lost a vote of confidence and yields on French 10-year sovereign bonds climbed past those of comparable Italian debt.
In a note to clients from EPFR’s sister company CEIC, the authors observed that, “The Franco-German 10-year yield spread, a gauge of risk, has been surging recently, marking one of the largest divergences since 2012. But unlike the early 2010s crisis, French yields are surpassing their Spanish equivalents and moving closer to Italian levels. Given that France is the euro area’s second-largest economy, signs of severe stress — whether fiscal deterioration or political turmoil — would likely spill into the currency itself. Historically, the EUR/CHF exchange rate has strongly correlated with wider Franco–German sovereign spreads.”
US Bond Funds absorbed another $12 billion, with a quarter of that total going to Municipal Bond Funds and funds with corporate mandates attracting $9 for every $1 going into US Sovereign Bond Funds as investors positioned themselves for the rate cut they expect later this month. Retail share classes took in fresh money for the 11th straight week.
Investors seeing emerging markets exposure took the diversified route. Global Emerging Markets (GEM) Bond Funds posted their second largest weekly inflow over the past 40 months. At the country level, China Bond Funds attracted over $400 million, flows into Brazil Bond Funds hit a 13-week high and Russia Bond Funds extended an inflow streak stretching back to mid-February while Turkey Bond Funds posted their biggest outflow since early April.
Global Bond Funds racked up their 11th consecutive inflow, with Europe-domiciled funds attracting more money than their US -based counterparts for the eighth week running. Flows to Japan-domiciled Global Bond Funds have rebounded after redemptions during the fourth week of August hit a level last seen in mid-2Q21.
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