Towards the end of the second week of August, the US administration removed a major barrier to 401K retirement plans investing in private equity. Although Alternative Funds have been immensely popular this year, with another $9 billion flowing in during the latest reporting period, the widely expected move was not followed by a surge of fresh money for the small universe of EPFR-tracked Private Equity Funds.
Between them, the 20 dedicated Private Equity Funds posted their fourth outflow over the past five weeks, a run that includes their biggest weekly redemptions on record.
Other higher risk/higher reward asset classes fared better as investors translated broad concerns about global growth into further – and faster – interest rate cuts in the US and other markets. Cryptocurrency Funds chalked up their second largest inflow year-to-date, High Yield Bond Funds took in fresh money for the 16th straight week and Emerging Markets Bond Funds extended their longest inflow streak since 2H20.
Overall, investors steered a net $25.8 billion into Bond Funds during the week ending August 13 while Equity Funds absorbed $26.3 billion despite redemptions from all Leveraged Equity Funds hitting an 11-week high of $4.3 billion. Balanced Funds added to their recent run of inflows and Money Market Funds pulled in $33 billion.
At the asset class and single country fund levels, flows into Physical Gold Funds climbed to an eight-week high, Coal Funds attracted fresh money for the 12th week running and Convertible Bond Funds added to their longest run of inflows since mid-2021. Brazil Money Market Funds set a new weekly inflow record, New Zealand Equity Funds posted their biggest outflow in over four months and Chile Bond Funds recorded their biggest inflow since the fourth week of January.
Emerging Markets Equity Funds
With tariff-related uncertainty clouding the outlook for key emerging markets, and talk of stagflation in some of the major developed markets they export to, EPFR-tracked Emerging Markets Equity Funds ended the second week of August by posting consecutive outflows for the first time since mid-May. Asia ex-Japan, the diversified Global Emerging Markets (GEM) and Frontier Markets Equity Funds all experienced net redemptions, with the latter posting their biggest outflow since April, while EMEA and Latin America Equity Funds recorded solid inflows.
Both India and China Equity Funds saw over $700 million flow out during the latest reporting period. India is embroiled in a dispute with the US over purchases of Russia oil, which has prompted the current US administration to target India with a 50% tariff rate. For China Equity Funds, it was their 12th modest outflow over the past 16 weeks. Meanwhile, Hong Kong (SAR) Equity Funds have attracted fresh money 20 of the past 24 weeks.
Fund managers remain more bullish about mainland China’s prospects, with the country sitting in the second quintile of EPFR’s weekly Emerging Markets Country Rankings while India sits at the bottom of the third quintile. Two of the world’s top three copper producers sit in the bottom quintile, and three of the countries that figure prominently in discussions about supply chain relocation – Mexico, the Philippines and Vietnam – are in the bottom two quintiles.
The top quintile of the latest rankings features four EMEA markets. Investors are generally on the same page, with EMEA Equity Funds racking up their 13th straight week. Within the universe, investors are more interested in emerging Europe and the Middle East than Africa. During the latest week, flows into Russia and Emerging Europe Regional Equity Funds hit eight and 25-week highs, respectively, while Poland Equity Funds posted their 19th inflow since the beginning of the second quarter and Romania Equity Funds tallied a new weekly inflow record while redemptions from Africa Regional Equity Funds climbed to a level last seen in late 1Q24.
Latin America Equity Funds saw their longest outflow streak of the year come to an end as flows into Mexico, Brazil and Chile mandated funds more than offset redemptions from regional funds.
Developed Markets Equity Funds
With major indexes testing their record highs, earnings reports throwing up more good than bad and hopes for further cuts in US and European interest rates running high, EPFR-tracked Developed Markets Equity Funds posted a collective inflow heading into the second half of August. US, Global, Europe, Pacific Regional, Canada and Australia Equity Funds all took in fresh money, offsetting further outflows from Japan Equity Funds.
The latest flows into US Equity Funds were broadly distributed, with 68 funds attracting over $100 million during the latest week and 29 of those taking in over $250 million. Flows into overseas domiciled funds hit their highest weekly total since the final week of January, but Leveraged US Equity Funds recorded their 17th outflow over the past four months and all retail share classes their 27th during the past 28 weeks. The latest retail redemptions come after these share classes, which have not seen consistent inflows since the first four months of 2021, enjoyed a record-setting inflow.
Retail flows also bypassed Japan Equity Funds, which racked up their fifth straight outflow and their ninth over the past 10 weeks. Investors are wary of the country’s minority government and its ability to navigate the current dynamics of US-Japanese trade, and those looking for regional exposure have been turning to Australia Equity Funds which have absorbed fresh money four of the past five weeks.
This enthusiasm for Australia is not shared by managers of the diversified Pacific and Global ex-US Equity Funds. Going into June, their average exposure was at its lowest level since 4Q23 and 4Q13, respectively. Both groups recorded inflows during the latest week.
Europe Equity Funds posted a modest collective inflow that was underpinned by regionally mandated funds. Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates recorded their biggest inflow in over three months. At the country level, France Equity Funds snapped their latest outflow streak, flows into Greece Equity Funds hit their highest level since late 2Q23 and UK Equity Funds added to a run of outflows that started in the third week of April.
Global sector, Industry and Precious Metals Funds
Flows for EPFR-tracked Sector Funds during the second week of August ranged from an inflow of $1 billion for Healthcare/Biotechnology Sector Funds to an outflow of $1.68 billion for Telecom Sector Funds. The numbers at both extremes represented a 24-week high. Four groups extended inflow streaks that range from six to 18 weeks, while two groups – Consumer Goods and Real Estate Sector Funds – have seen consecutive weekly outflows since early July. Investors also brought an end to Technology Sector Funds’ six-week inflow streak.
The flows into Healthcare Sector Funds came against a troubling backdrop in the US. Pharma bellwether Moderna is contending with lower demand for its Covid vaccine, Eli Lilly faces concerns over its weight loss drug trial despite solid financial results, UnitedHealthcare is under investigation by the Department of Justice and US President Trump plans to implement substantial cuts to the US public healthcare system during the coming decade.
Of the top healthcare 10 funds ranked by inflows during the latest week, six were China-domiciled and the remainder US-domiciled. Among them, three tracked brand name or innovative drug indexes, three were biotech, one was benchmarked to North American Marijuana, and another was an actively managed ETF leveraged 2x to Eli Lilly’s stock price.
When EPFR first started tracking Industrials Sector Funds in late 2003, the group post 15 straight weeks of inflows and brought in $258 million. That was the longest run of inflows on record until this year, with the current streak at 18 weeks and nearly $12 billion total. For the first time in two years, flows into funds across all European domiciles have far surpassed those domiciled in the US, reaching over $10 billion year-to-date compared to $3.8 billion, respectively.
Utilities Sector Funds extended their inflow streak to 10 weeks, the longest stretch since late 2011. The group has racked up over $2.5 billion in that time, with a single SPDR ETF pulling in the bulk of that headline number, and two leveraged 2x ETFs tracking SMR and OKLO (an advanced nuclear technology company) attracting a combined $125 million. Overall, flows into Leveraged Utilities Sector Funds have been negative only four times in the past 40 days, and have been reaching record-setting territory.
Bond and other Fixed Income Funds
Going into the second half of August, money continued to pour into EPFR-tracked Bond Funds despite lingering concerns about central bank independence, US and European deficits, the stickiness of inflation in key markets and the weaker outlook for global economic growth. Net year-to-date flows into all Bond Funds are now north of $450 billion.
The latest week saw US Bond Funds post their 30th inflow so far this year, Emerging Markets Bond Funds attract fresh money for the 17th week in a row, Asia Pacific Bond Funds extend their longest run of inflows in over a decade, and Global Bond Funds chalk up their 14th inflow since the beginning of May.
At the asset class level, Convertible Bond Funds extended their longest inflow streak in nearly four years, Mortgage Backed Bond Funds ran their current inflow streak to 16 weeks and $13 billion total, and Ultra Short Term Bond Funds attracted another $1.6 billion this week.
Asia Pacific Bond Funds absorbed fresh money for the 13th straight week, extending their longest inflow streak since 1H15, with Australia and Japan-mandated funds both pulling in over $100 million. Japan Bond Funds recorded their seventh consecutive inflow, but data from EPFR sister company CEIC highlights a disconnect between this positive signal and sentiment in the primary market.
In a recent note to clients, CEIC highlighted that, “The Aug. 7 auction of 30-year Japanese government bonds (JGBs) saw the average yield reach 3.089% – the highest in decades and a substantial rise from 2.808% in the previous auction a month earlier. The bid-to-cover ratio – a key measure of demand – slightly declined to 3.4….This auction took place just days after the historic election loss suffered by Prime Minister Shigeru Ishiba’s ruling coalition, which was followed by a trade deal where Japan agreed to US tariffs….the jitters the election caused were even more apparent when even-longer-dated debt (40-year JGBs) was sold on July 23, as our second chart shows. That auction recorded a bid-to-cover ratio of just 2.127 – the weakest since 2011 – reflecting strained investor appetite for super-long maturity debt.”
Europe Bond Funds added to their current inflow streak, with investors taking an ex-UK and pro-investment grade corporate tack. UK Bond Funds posted their fifth outflow over the past six weeks while over $3 billion flowed into Europe ex-UK Regional Bond Funds. Meanwhile, funds with corporate mandates absorbed over $3 for every $1 committed to their sovereign counterparts.
Foreign domiciled US Bond Funds took in fresh money for the eighth week in a row, retail share classes extended their longest run of inflows so far this year and Long Term US Bond Funds posted their biggest collective inflow since the third week of May.
Although Asia ex-Japan Country Fund groups again did the heavy lifting when it came to the headline number for all Emerging Markets Bond Funds, there were signs that investors are taking a broader approach to the asset class. The diversified Global Emerging Markets (GEM) Bond Funds posted their fourth straight inflow, and their third largest since the beginning of 4Q24, while Frontier Markets Bond Funds absorbed fresh money for the sixth week running.
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