As a result, EPFR-tracked Equity Funds ended the week of June 11 with their third outflow over the past four weeks and their biggest year-to-date while nearly $15 billion flowed into Bond Funds. The possibility of another oil price shock helped to snap Europe Equity Funds’ latest inflow streak, weighed on several Emerging Markets Equity Country Fund groups dedicated to major energy importers and chased a combined $1.7 billion into Physical Gold and Silver Funds.
The specter of higher energy costs feeding into inflation and boosting the cost of capital dealt Leveraged Equity Funds another blow, with that group extending their longest run of outflows since 4Q20, and put additional pressure on Technology Sector and Biotechnology Funds.
At the single country and asset class fund level, China Bond Funds posted a new inflow record, flows into Greece Equity Funds hit their highest level in exactly two years and Thailand Equity Funds extended an outflow streak now in its 18th month. Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates experienced their heaviest redemptions since the first week of April, Municipal Bond Funds saw flows rebound to a 15-week high and Physical Silver Funds chalked up their biggest inflow in over 10 months.
Emerging Markets Equity Funds
Another week of outflows from mainland China-mandated funds proved too much for other EPFR-tracked Emerging Markets Equity Fund groups to offset in early June. As a result, the overall group tallied its 13th collective outflow year-to-date despite Latin America Equity Funds again recording above average inflows and Global Emerging Markets (GEM) Equity Funds equaling their longest inflow streak since early 4Q24.
While China Equity Funds recorded the biggest outflow in cash terms among the major Asia ex-Japan Country Fund groups, Korea Equity Funds took a bigger hit in relative terms as investors digested Lee Jae-myung’s victory in the recent presidential election and fretted about a spike in oil prices if Israel does strike Iran. For the second week running, the headline for Korea Equity Funds was driven by domestically domiciled funds, which chalked up their biggest outflow in a year while foreign domiciled funds posted their second straight inflow record.
Retail flows for China Equity Funds were negative for the 18th time so far this year, and Leveraged China Equity Funds posted their biggest outflow in three months as they extended their longest redemption streak since 1Q19.
Brazil Equity Funds again underpinned the headline number for Latin America Equity Funds, with the funds attracting over $350 million despite the uncertainties surrounding ongoing tax reforms, a base interest rate at its highest level in nearly two decades and a major drought now in its third year.
In the EMEA Equity Fund universe, Poland Equity Funds continue to shine following the victory of populist presidential candidate Karol Nawrocki who has pledged to block deeper integration with the European Union. Funds dedicated to South Africa, whose appeal has been buoyed by its precious metals story and recent interest rate cut, tallied their biggest inflow since the first week of the year.
Developed Markets Equity Funds
Visions of a new round of fighting in the Middle East, with the attendant geopolitical risks, waves of refugees and higher energy prices, sapped already fragile sentiment towards developed markets during the week ending June 11. US, Canada, Japan and Europe Equity Funds all posted outflows that more than offset flows into Global and Asia Pacific Regional Funds.
Fighting, as well as American trade policy, was already on the minds of investors looking to Europe as Russia’s invasion of Ukraine moved deeper into its fourth year. The continent’s rearmament story continues to bolster flows, with Germany Equity Funds pulling in another $222 billion, but UK Equity Funds experienced outflows of over $1 billion in the wake of a badly received government spending review whose pledges add up to higher taxes in the future.
Investors continue to shun European markets associated with fiscal discipline. Enthusiasm for southern tier markets that were hit hard by the sovereign debt crisis is, however, running at high levels.
Enthusiasm for US exposure continues to grind in the opposite direction, with US Equity Funds posting their fourth straight outflow and their biggest since late March despite additional flows into foreign domiciled funds. Of the major groups by style and capitalization, only Mid-Cap Blend Funds attracted fresh money. Large Cap Blend Funds, which posted only eight weekly outflows last year, recorded their seventh of this year.
Japan Equity Funds tallied their third outflow over the past four weeks. Bank of Japan Governor Kazuo Ueda, who struck a cautious note on future interest rate hikes the week before, reiterated the bank’s willingness to combat above target inflation. A stronger yen relative to the US dollar is already adding to the tariff-related pressure on the outlook for major Japanese export plays.
While leery of increasing their direct exposure to Japan, investors steered over $200 million into the diversified Pacific Regional Equity Funds. That was their biggest inflow since late 3Q23. The largest of the diversified Developed Markets Equity Fund groups, Global Equity Funds, saw flows remain positive but lose further momentum.
Global sector, Industry and Precious Metals Funds
Sector Fund flows in early June showed conviction. For the first time since early December, eight of the 11 EPFR-tracked Sector Fund groups received inflows in the same week. Consumer Goods Sector Funds led with $1.04 billion – their biggest inflow since mid-1Q24 – while Utilities Sector Funds trailed with $234 million – snapping three consecutive weeks of outflows. Redemptions from the remaining three groups – Technology, Healthcare/Biotech, and Financials Sector Funds – stood around the $1 billion mark.
Flows into Telecoms Sector Funds were the biggest since the beginning of the year and more than doubled any inflow recorded over the past eight weeks. A single fund tracking the Communication Services Select Sector index attracted almost 70% of this week’s headline number.
Current EPFR Sector Allocations data shows actively managed US Equity Funds continue to overweight Telecom Services (2.4%), and underweight Information Technology (5.7%) with that gap widening by 190 basis points compared to April last year.
Financials are currently the biggest overweight (2.4%) among actively managed US Equity Funds, but Energy has shifted to an underweight position after 11 straight months of being overweighted. Energy Sector Funds absorbed their biggest inflow in almost a year, bringing an end to their 13-week, $7.8 billion total outflow streak.
Industrials Sector Funds continue to see above average flows, reaching above $800 million three times during the past five. All Aerospace & Defense Funds have attracted over $7 billion year-to-date, more than double any previous yearly inflow since data back to 2003.
The latest hefty inflow came during a week where Boeing, one of the two largest aerospace and defense contractors in the US, found it’s quality and maintenance practices in the spotlight again after one of its planes crashed in India.
Flows into Silver Funds pushed even further past the $500 million mark this week, boosting their five-week inflow streak to $1.6 billion total. Accounting for majority of this week’s inflow were two passively managed ETFs benchmarked to the London Silver Fix Price index, while six of the top 10 funds with the biggest inflows were benchmarked to Silver Spot Prices.
Bond and other Fixed Income Funds
Despite the underlying angst about sovereign indebtedness, geopolitical tensions and appetite for yield kept the money flowing into EPFR-tracked Bond Funds during the week ending June 11. Sentiment was helped by some better than expected bond auctions.
The latest week saw year-to-date inflows for all funds climb past the $200 billion mark as Europe, Global, Emerging Markets, US and Canada Bond Funds all attracted fair-to-good amounts of fresh money. The flows into Emerging Markets Bond Funds, paced by record-setting commitments to China Bond Funds, chalked up their biggest collective inflow since the third week of 2021.
In the case of the mainland China-dedicated funds, the inflows were broadly based with 12 funds absorbing over $50 million apiece. China Corporate Funds took in over $4 for every $1 committed to funds with sovereign mandates. It remains to be seen if GEM Bond Fund managers share this enthusiasm. Coming into May, their average allocation to China stood at its lowest level since late 2Q17.
US Bond Funds, meanwhile, posted their smallest inflow since the final week of April as investors focused on the latest inflation data and auctions of 10- and 30-year Treasuries that fell either side of the end of the latest reporting period. The auction of 10-year notes saw solid demand, as was the subsequent sale of 30-year notes. But the overall trend, captured in the chart below from EPFR sister company CEIC, highlights the trend that is making investors nervous.
Investors looking for alternatives pivoted to municipal debt, with US Municipal Bond Funds recording their biggest inflow in over three months. They also kept a lid on duration risk, with US-mandated Ultra Short Term Bond Funds pulling in over $1 billion for the sixth time during the past eight weeks.
Among the major Europe Bond Fund groups, the latest inflows favored funds offering diversified rather than single country exposure to investment grade corporate debt. At the country level, redemptions from Switzerland Bond Funds hit a seven-week high as investors digested the return of negative yields on some Swiss debt.
For the second straight week and seventh time so far this year, both the major multi asset fund groups posted an inflow. Total Return Funds have posted inflows 20 times YTD versus eight inflows for Balanced Funds. Last year, the former only posted seven outflows while Balanced Funds recorded just three inflows.
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