US equity, bond funds find Christmas stockings stuffed

KUALA LUMPUR: While much of the talk about 2010 centered on exit strategies for governments and central banks, investors were still arriving at the entrance during the penultimate week of 2009, according to EPFR Global.

In a report released on Monday, Dec 28, it said during the week ending Dec 23 EPFR Global-tracked equity and bond funds absorbed US$13.32 billion and US$4.03 billion respectively, with US Equity Funds, Global Equity Funds leading the equity funds and US and Global Bond Funds leading the fixed income categories.

“Exchange traded funds (ETFs) were at the center of this week’s activity,” noted EPFR Global Senior Analyst Cameron Brandt, “which is in keeping with the tendency at this time of year to take positions that “dress” the books for 2009 and keep the options for next year relatively open.”

The US Equity Fund inflows of US$11.1 billion for the week were the strongest since June, 2008 and helps to improve the record year to date net outflows of what is now US$69 billion from these funds (including funds reporting both weekly and monthly).

US Bond Funds absorbed another US$1.7 billion in the latest week, adding to their record inflow totals. The US bond fund inflows have been driven by the investor flows into Municipal Bond Funds, which have set records with nearly US$50 billion of inflows so far this year. The US$2 billion received by Global Bond Funds also extends their record yearly inflows.

Another week of inflows into Emerging Market Equity funds takes their record yearly inflow total to US$80.3 billion.

Flows out of Money Market Funds slowed appreciably, with outflows only a tenth of the previous week’s US$37 billion. But this fund group remains one of eight that seem likely to end 2009 with record outflows or inflows.

Emerging Market Equity Fund Flows

All Emerging Market Equity Funds took in about US$1.7 billion of net inflows in the week ending Dec 23, extending the year to date total.

Flows into the geographically diversified Global Emerging Markets (GEM) Equity Funds surged during the second to last week of the year as better data from the US economy and the US Federal Reserve’s decision to keep interest rates on hold bolstered the outlook for emerging market’s exporters.

GEM funds took in a net US$1.94 billion for the week – a nine-week high – as year-to-date inflows moved north of US$40 billion.

Asia ex-Japan Equity Funds also posted modest inflows of US$179 million for the week, with investors in this region rotating some exposure from smaller markets like Taiwan and Singapore to bigger ones such as China .

China Equity Funds took in another US$153 million, maintaining their record-setting pace, and dedicated BRIC Equity Funds also remain on track for a record setting year after absorbing another US$451 million.

Flows into EMEA Equity Funds were even more modest, totaling less than US$1 billion, as enthusiasm for Russia ’s commodities story was offset by concerns about the outlook for the Baltic and Central European economies.

Latin America Equity Funds, meanwhile, now look set to fall just short of their 2007 inflow record as Mexico ’s recent ratings downgrade continues to weigh on investor sentiment. Redemptions from this group totaled $136 million as they recorded their first two-week outflow streak since early July.

US, Global, Europe and Japan Equity Fund Flows

US Equity Funds took in a 79-week high of US$11.13 billion in late December as money poured into US Large Cap Equity Funds and US Financial Sector ETFs. Growth oriented funds outperformed Value funds across all capitalizations.

Some better housing and employment data and expectations of some positive surprises when the 4Q09 earnings season kicks off next month helped key US equity indexes climb to 14-month highs before Christmas.

Optimism about the world’s biggest economy did not spill over into funds investing in Japan and developed Europe . The former, despite a weaker currency that helped key export plays gain ground, posted modest outflows while investors pulled $830 million out of Europe Equity Funds with Germany Equity Fund ETFs accounting for around two-thirds of that total after manufacturing data for the region’s largest economy in November showed unexpected weakness.


Global Equity Funds one of the two major diversified fund groups that invest primarily to developed markets, continue to finish 2009 at a gallop. They took in another US$1.09 billion as YTD inflows climbed over the $18 million mark. Pacific Equity Funds posted outflows of $28 million for the week.
Sector Funds

Flows into EPFR Global-tracked Financial Sector Funds hit a YTD high of US$887 million during the week ending Dec. 24 as investors translated better US housing data into reduced pressure on many bank balance sheets. Real Estate Sector Funds also benefited, taking in US$171 million for the week, as did Consumer Sector Funds.

The more bullish attitude evident in the run up to Christmas was reflected in the flows into TECHNOLOGY [] and Commodity Sector Funds, which took in US$173 million and US$113 million respectively, with the latter’s latest inflow streak standing at 16 straight weeks.

With the Copenhagen Climate Summit ending without any dramatic new commitments, Utilities Sector Funds absorbed another US$76 million and Energy Sector Funds a modest US$33 million. Healthcare/Biotechnology Sector Funds took in fresh money for the sixth straight week as healthcare reform legislation finally emerged from the US Senate.

Bond and other Fixed Income Funds

EPFR Global-tracked US and Global Bond Funds maintained their strong showings, with the former maintaining their record of taking in fresh money every week YTD and the latter recording their 37th consecutive week of inflows. US Bond Funds absorbed US$1.67 billion for the week while Global Bond Funds took in US$2.03 billion.

Flows into US Inflation Protection Bond Funds hit a YTD high of US$412 million for the week but funds investing in short-term government and corporate debt had one of their slower weeks.


Despite a noticeable spike in risk appetite that saw the spread between US Treasuries and JP Morgan’s benchmark EMBI+ index drop back below the 300 basis points level, High Yield Bond Funds posted modest outflows of US$31 million for the week. But Emerging Markets Bond Funds took in another US$369 million, with funds investing in local currency debt to the fore, as YTD inflows for this fund group moved over the $8 billion mark.

Balanced Funds, which invest in both bonds and equities, took in another US$416 million.

Note: EPFR Global provides fund flows and asset allocation data to financial institutions around the world.

It tracks both traditional and alternative funds domiciled globally with US$12 trillion in total assets.