In the wake of the Federal Reserve’s first interest rate cut of 2025, benchmark US equity indexes surged to fresh record highs. But the latest flow data shows that, despite solid overall numbers, any euphoria about cheaper borrowing costs is tempered by concerns about the strength of the US economy and the US dollar.
Overall, the week ending September 24 saw EPFR-tracked Equity and Bond Funds pull in $19.5 billion and $24.6 billion, respectively, while Alternative Funds absorbed $8.8 billion and Money Market Funds added another $21.3 billion to a year-to-date total that now stands at over $500 billion.
Meanwhile, EPFR’s G10 Currency Model ranked the US dollar in the bottom quintile for the 22nd consecutive week. Physical Gold Funds extended their current inflow streak to five weeks and $17.6 billion, flows into Physical Silver Funds hit their highest level in 14 months and Commodities Sector Funds took in over $1 billion for the fifth straight week while redemptions from US Dividend and Technology Sector Funds climbed to 13 and 17-week highs, respectively.
At the single country and asset class fund levels, Aerospace & Defense Funds absorbed fresh money for the 36th time this year, Synthetic Funds recorded their biggest inflow since last December and Convertible Bond Funds posted consecutive weekly outflows for the first time since the third week of May. Flows into Netherlands Equity Funds climbed to a 24-week high, Peru Equity Funds chalked up their biggest inflow since late March and UK Money Market Funds experienced their heaviest outflows in exactly three months.
Emerging Markets Equity Funds
Faith the Chinese policymakers are increasingly focused on growth helped both mainland China-mandated and all Emerging Markets Equity Funds post solid headline numbers during the week ending Sept. 24. All four of the major regional groups recorded inflows that ranged from $20 million for EMEA Equity Funds to $4.1 billion for Asia ex-Japan Equity Funds.
Drilling down, however, retail share classes posted their 35th outflow year-to-date, snapping their first run of consecutive inflows since 2Q24, while Leveraged EM Equity Funds extended their longest redemption streak since a 10-week run ended in early 1Q21 and EM Dividend Funds chalked up their third consecutive outflow.
China Equity Funds took in fresh money for the fifth time over the past six weeks as investors tightened their focus at the expense of the Greater China and EM ex-China themes. Money flowed out of Hong Kong (SAR) Equity Funds for the second week running, Taiwan (POC) Equity Funds tallied their third largest weekly outflow of the year so far and Global Emerging Markets (GEM) ex-China Equity Funds saw over $200 million redeemed.
Actively managed Asia ex-Japan Regional Equity Funds have been rotating exposure to China and Korea this year at the expense of India and, to a lesser extent, Indonesia and Taiwan. In the case of India and Taiwan they are taking the opposite tack from their passively managed counterparts.
Investors looking to Latin America pivoted from Brazil and Argentina to Mexico, Peru and Chile. Mexico Equity Funds, which racked up their biggest inflow since 2Q24, are benefiting from the perception that the worst may have passed when it comes to US President Donald Trump’s efforts to rebalance global trade in America’s favor.
Among the EMEA Country Fund groups, Israel Equity Funds took a hit, posting their biggest outflow in over seven years during a week when the UK, Canada and France recognized Palestine as a state.
Developed Markets Equity Funds
With the US finally joining the ranks of the markets that have seen domestic interest rates fall this year, EPFR-tracked Developed Markets Equity Funds chalked up their 13th inflow over the past 15 weeks as the third quarter winds down. Investors showed a mildly contrarian streak during the latest week, steering money into funds dedicated to markets such as Japan, the UK and US facing major political and policy challenges.
Europe Equity Funds posted their biggest collective inflow since early June as the continent’s rearmament story was boosted by US President Donald Trump’s public demand that the continent “step it up” when it comes to confronting Russian aggression. The bulk of the latest inflow went to Switzerland and Europe ex-UK Regional Equity Funds, but dedicated UK Equity Funds posted their first inflow since mid-April despite the issues facing its economy.
Some of those issues are highlighted in a research release from EPFR’s sister company CEIC. In it, the authors note that, “The UK has had a rough 2025 as the [country’s] fiscal situation begins to worry markets and inflation weighs on consumers. Meanwhile, the job market keeps getting worse, with unemployment stuck at a four-year high… The Bank of England faces a dilemma: while the labor market increasingly suggests the economy needs support, inflationary pressures [are] eroding what sluggish wage growth there has been.”
The authors also highlight that, “Citigroup’s Inflation Surprise Index confirms that the UK has been an international outlier: price data has consistently overshot expectations so far this year – a factor in the central bank’s go-slow approach to rate cuts, including this week’s decision to hold the key rate at 4% and pause quantitative tightening.”
Funds dedicated to the market with an even worse record when it comes to inflation surprises, Japan, also recorded modest inflows despite an eighth outflow from overseas domiciled Japan Equity Funds over the past nine weeks. Japan is also facing political uncertainty triggered by the recent resignation of Prime Minister Ishiba Shigeru whose replacement will be selected in the coming week.
US Equity Funds ended the week with a modest inflow as investors weighed the chances of further interest rate cuts and the chance of a meaningful government shutdown if current budget negotiations break down. The latest industry allocations data shows that actively managed funds pulled back from several consumer-related groups, with exposure to Household and Personal Products and Food, Beverage and Tobacco at nine-year and record lows, respectively.
Global sector, Industry and Precious Metals Funds
It was a more even playing field in late September, with six EPFR-tracked Sector Fund groups posting inflows and five reporting outflows. Three of them – Commodities/Materials, Financials, and Industrials Sector Funds – saw inflows above $1 billion, while redemptions ranged from $30 million for Healthcare to $1.3 billion for Telecom Sector Funds.
Industrials Sector Funds have pulled in $20.6 billion this year, and are on pace to triple any previous yearly inflow. The subgroup of Aerospace & Defense Funds, which have seen just two weeks of outflows year-to-date, account for $16.8 billion – or over 80% – of that total. Last year, they made less of an impact with just 35% of the sector’s yearly inflow. For the second week straight, six of the top 10 funds with the biggest inflows were aerospace & defense ETFs, and occupying another spot was a shipbuilding ETF.
The latest headline number for Technology Sector Funds was underwhelming. But looking past it showed appetite for the artificial intelligence story remains strong and China’s role in that story relative to the US is being positively reassessed. Flows into Artificial Intelligence Funds were greater than the sector’s overall, with just two funds bringing in over $1 billion combined, and China Technology Sector Funds posted their biggest inflow since early 4Q24 while US-dedicated funds saw redemptions climb to an 18-week high of $4.3 billion.
The number for China Technology Sector Funds was inflated by the reclassification of some passively managed Hong Kong funds as China-mandated, impacting roughly 73 funds with $41.48 billion in AuM. Many of which were Large Cap Blend or sector specific (healthcare, tech, consumer goods).
Commodities/Materials Sector Funds extended their run of inflows to 12 weeks and $10 billion total. A third of that total has been attributed to Gold Mining Funds.
On the alternative side, Physical Gold Fund flows exceeded $5 billion for the second time in the past four weeks. It was their 15th inflow of the past 18 weeks, and 30th of the 39 weeks year-to-date. Almost every inflow this year, excluding four weeks, has been above $1 billion. US-domiciled Gold Funds have absorbed $33.7 billion so far this year, topping their 2020 record of $27.4 billion.
Bond and other Fixed Income Funds
The third week of September saw EPFR-tracked Bond Funds extend an inflow streak that started in the final week of April. The latest inflow lifted their total for the year so far over $620 billion with US-mandated funds accounting for two thirds of that total and Bond ETFs on track to eclipse 2024’s full-year record.
All of the major groups by geographic focus posted inflows that ranged from $101 million for Asia Pacific Bond Funds to $18.2 billion – their second highest total so far this year – for US Bond Funds.
At the asset class, Municipal Bond Funds posted their first outflow since early June and Convertible Bond Funds, which saw a 15-week inflow streak snapped the previous week, also experienced net redemptions. Investors steered another $1 billion into Ultra Short Term Bond Funds, committed fresh money to Inflation Protected Bond Funds for the 11th week running and propelled the headline number for funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates to its highest level since early April.
Both foreign and domestically domiciled US Bond Funds posted solid inflows, and retail share classes absorbed fresh money for the 11th time quarter-to-date. Short Term Sovereign Bond Funds stood out, with inflows hitting a 24-week high, and Intermediate Term Sovereign Bond Funds had their best week since early May. In the primary market, the latest auction of seven-year Treasuries had a bid-to-cover ratio of 2.4.
Flows to Emerging Markets Bond Funds favored funds with diversified or emerging Asia mandates, with local currency funds taking in $3 for every $1 committed to EM Hard Currency Funds. At the country level, flows into China Bond Funds were the third smallest since their current run of inflows began in mid-March.
The recent downgrade of French debt by ratings agency Fitch did not stop both France and all Europe Bond Funds from recording inflows during the latest week. Funds with corporate mandates fared better in flow terms than their sovereign counterparts for the 20th time over the past 21 weeks.
Did you find this useful? Get our EPFR Insights delivered to your inbox.
