Going into the final days of August, flows to – and from – EPFR-tracked mutual funds and ETFs continued to contradict the broader market narrative of waning interest in US assets and the country’s overvalued and over-concentrated technology story, with investors shifting their focus to Europe and its rearmament story.
During the latest week, investors steered a combined $40 billion into US Equity, Bond and Money Market Funds and flows into Artificial Intelligence Funds climbed to a 26-week high while Europe Equity Funds recorded consecutive weekly outflows for the first time since early February and Aerospace and Defense Funds experienced net redemptions for the first time this year.
The week ending August 27 also saw Leveraged Equity Funds post their first collective inflow since the first week of April while Bear Funds chalked up only their fifth outflow over that period, High Yield Bond Funds snap a 17-week run of inflows and Convertible Bond Funds set a new weekly inflow record.
Investors preference for the convenience and lower costs of exchange traded funds (ETFs) continues unabated. In the US, the number of ETFs available to investors now exceeds the number of listed US stocks. ETF’s share of all assets held by EPFR-tracked Equity Funds has climbed from 24% at the start of the decade to 34% at the end of July. For all Bond Funds, ETFs share of total assets has climbed from 13% to 22%.
At the single country fund level, Australia Bond Funds took in fresh money for the 33rd time year-to-date, redemptions from UK Money Market Funds climbed to a nine-week high, New Zealand Equity Funds posted their biggest outflow since 3Q21 and Thailand Equity Funds extended an outflow streak stretching back to the beginning of last year.
Emerging Markets Equity Funds
Flows into EPFR-tracked Emerging Markets Equity Funds climbed to a nine-week high in late August on the back of another solid week for mainland China-mandated funds. All of the major regional groups posted an inflow for the week ending August 27 that ranged from $17 million for the diversified Global Emerging Markets (GEM) Equity Funds to $2.9 billion for Asia ex-Japan Equity Funds.
GEM Equity Funds have now recorded an inflow during 12 of the past 14 weeks. The latest country and sector allocations data for that group shows that active managers have cut their weightings for Turkey, India and Indonesia to 19, 20 and 49-month lows, respectively, while exposure to the Energy and Utilities sectors was at a record low coming into August.
Flows into China Equity Funds hit a 20-week high as domestic investors propelled the country’s benchmark equities index to a level last seen a decade ago. Overseas-domiciled funds took in fresh money for the third week running, the first time that has happened since mid-March. But flows into GEM ex-China Equity Funds climbed to a five-week high, and funds dedicated to Chinese state-owned enterprises (SOE) recorded their biggest outflow in three months.
Elsewhere, India Equity Funds posted their fifth straight outflow. But redemptions are losing momentum despite the threat of even higher US tariffs, with some investors translating the destructive yet ample monsoon rains into lower food prices, which in turn leads to lower inflation and interest rates.
Latin America Equity Funds chalked up another inflow, with investors for the most part opting for diversified fund groups over single country ones. Chile Equity Funds were the exception, tallying their second largest weekly inflow since mid-2023. The possibility that November’s contest will see Jose Kast, a right of center politician with a reformist agenda, win the presidency has prompted investors to reassess Chile’s outlook.
Among the EMEA Country Fund groups, Turkey Equity Funds extended their longest run of outflows in over 11 months and both Russia and Poland Equity Funds saw money flow out.
Developed Markets Equity Funds
Flows to US Equity Funds bounced back during the fourth week of August as investors shrugged off concerns about the ability of artificial intelligence in the short run to boost corporate productivity and profits and regained their confidence that a September interest rate cut is firmly on the cards. Those inflows, and another good week for globally-mandate funds, offset redemptions from Japan and Europe Equity Funds and allowed EPFR-tracked Developed Markets Equity Funds to rack up their 10th inflow since mid-June.
Having posted 23 weekly inflows between mid-February and late July, Europe Equity Funds have seen money flow out three of the past four weeks as investors question if fiscal realities and a potential ceasefire in Ukraine will deflate a hoped for boost in European defense spending. The deteriorating debt dynamics of both France and the UK have been drawing more attention, with their respective governments unwilling or unable to cut spending, and the euro has dropped into the bottom quintile of EPFR’s weekly G-10 currency rankings.
The US dollar has been camped in that quintile for the better part of fourth months. But US Equity Funds recorded their third inflow over the past five weeks as foreign-domiciled funds absorbed fresh money for the sixth time since the second week of July. Flows into US Dividend Funds have gained momentum for three straight weeks and Leveraged US Equity Funds racked up consecutive inflows for the first time since early April. Meanwhile, announced corporate share buybacks year-to-date have passed the $1 trillion mark.
Japan Equity Funds added to their latest inflow streak during a week when flows into retail share classes hit an 18-week high. The stronger yen has hit sentiment towards Japanese exporters, already under pressure from shifting trade dynamics with the US, but there are signs of increasing public support for the minority government headed by Prime Minister Shigeru Ishiba.
Japan’s average allocation among actively managed Global ex-US Equity Funds fell to a 27-month low coming into August. That group extended their current inflow streak, but attracted only $2 for every $3 committed to funds with fully global mandates.
Global sector, Industry and Precious Metals Funds
Nine of the 11 EPFR-tracked Sector Fund groups ended the week to August 27 in positive territory, with inflows ranging from $14 million for Energy Sector Funds to $2.9 billion for Financials Sector Funds. Another group – Technology Sector Funds – was on pace to top those with inflows reaching $3.3 billion in the first four days. That, however, was reversed by outflows of $3.05 billion on the final day of the reporting period.
From Trump’s April ban on chip sales to China, to its subsequent reversal, Nvidia has struggled this year to maintain momentum, making its latest earnings report a key focal point for investors. Among the top 10 Technology Sector Funds with the biggest inflows this week, two leveraged 2x ETFs tracking Nvidia collectively pulled in nearly $500 million and two AI funds brought in a total of $460 million. Flows into Artificial Intelligence Funds hit a 14-week high overall.
For the two groups posting outflows, modest outflows for Utilities Sector Funds snapped their 11-week inflow streak that brought in $2.7 billion. During their run of inflows, a single fund benchmarked to the S&P Utilities Sector accounted for the bulk of the headline number, while stock-specific leveraged 2x funds tracking SMR (NuScale), OKLO, VST (Vistra), and CEG (Constellation Energy) saw inflows as a percentage of assets range from 134% to 8,556% (just in those 11 weeks). Soaring energy demands to build AI data centers have created a resurgence in the nuclear power sector and investors are tapping in through those stocks.
In the case of dedicated Energy Sector Funds, the group has posted inflows seven of the past nine weeks, compared to just three weeks of inflows during the first half of the year. A custom grouping of Coal Funds has posted inflows for 14 straight weeks that included a record-setting $199 million in mid-July.
The over $1.7 billion that flowed into Commodities/Materials Sector Funds this week marks the biggest inflow since late 1Q22 and extended their run of inflows to eight weeks. Of the top 10 funds with the biggest inflows this week, three were focused on the chemicals sub-industry, reflecting growing demand for high-end chemical production with applications ranging from robotics to EVs to aerospace.
Bond and other Fixed Income Funds
Concerns about rising French and British yields, US President Donald Trump’s latest broadside against the US Federal Reserve and rising sovereign issuance on primary markets took some of the steam out of flows to EPFR-tracked Bond Funds during the fourth week of August. But they still absorbed a collective $19.6 billion that took their year-to-date total over the $550 billion mark.
The latest week saw US, Canada, Global, Asia Pacific and Emerging Markets Bond Funds add to inflow streaks ranging from nine to 19 consecutive weeks. In the case of EM and Asia Pacific Funds, those are the longest since runs that ended in 1Q21 and 1Q13, respectively.
At the asset class level, High Yield Bond Funds posted their first outflow since the third week of April, Bank Loan Funds chalked up their 17th inflow over the past four months, Ultra Short-Term Bond Funds took in another $1.1 billion and Convertible Bonds Funds enjoyed record setting inflows. Bond Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates chalked up their first consecutive weekly outflow, and their biggest, since April.
US Bond Funds continue to benefit from a desire for predictability amidst the rapid policy shifts and protectionist goals of the current US administration, though the implications of those policies on the cost of living have seen US Treasury Inflation Protected Securities (TIPS) Funds take in fresh money for seven straight weeks and during 28 of the 34 weeks year-to-date.
Flows for Europe Inflation Protected Bond Funds were also positive, climbing to a seven-week high, during a week when France and the UK’s persistent deficits were fueling speculative talk of IMF bailouts. Europe ex-UK Regional Bond Funds accounted for the bulk of the latest headline number for all Europe Bond Funds and flows into funds with corporate mandates outgained their sovereign counterparts for the 16th straight week.
Asia ex-Japan Bond Funds narrowly avoided an end to their current inflow streak while the diversified Global Emerging Markets (GEM) Bond Funds made the biggest contribution to the headline number for all Emerging Markets Bond Funds.
Did you find this useful? Get our EPFR Insights delivered to your inbox.
