Developed markets best emerging in fund flows: EPFR

Investors hunting for higher returns on their cash put a record net USD 1.4 billion extra into high yield bond funds for the week ended February 9, while the rotation into developed market stocks continued, data from EPFR Global showed on Friday.

All equity funds tracked by the Cambridge, Massachusetts-based firm showed net inflows of USD 2.8 billion while all bond funds combined had net outflows of USD 186 million. Money market funds, typically used as a place to park cash for safe-keeping, took in a seven-week high USD 14.2 billion. In the equity space, funds focused on the United States, Europe, Global and Japan took in a net USD 6 billion or so. However there was a net USD 3 billion pulled out of emerging market equities as well as USD 351 million from Pacific equity funds. EPFR said in a statement that the protests in the Middle East, which resulted on Friday with Egyptian President Hosni Mubarak's stepping down after 30 years in power, and China's latest interest rate risk were the dominant factors behind another week of net redemptions in the sector. Emerging market local currency debt funds had net outflows of USD 67 million while the hard-currency variety had outflows of USD 422 million in the latest week. In sector funds, both energy and commodity funds took in net new cash of USD 1.01 billion and USD 1.14 billion, respectively. Developed Drilling down into the data, EPFR said US equity funds had modest inflows of USD 503 million, a ninth week out of the last ten, with mid-cap growth faring better than those with a value orientation. "Actively managed funds attracted the most money in a single week since EPFR Global started tracking this fund group in the mid-1990's, but investors pulled over USD 2.5 billion out of passively managed funds," the firm said. This is consistent with data reported on Thursday from Thomson Reuters' Lipper service, which showed the SPDR S&P 500 ETF had net redemptions totalling USD 3.23 billion, the biggest outflow among ETFs this past week. European equities had inflows of USD 2 billion. Among the main markets, the UK had net inflows of USD 303 million, while France had outflows of USD 246 million. Japan had net inflows of USD 676 million. "In percentage of assets under management terms, Japan Equity Funds continue to lead the way, with year-to-date inflows equal to over 6% of assets under management (AUM) going into 2011," EPFR said. "Investors are seeing value in Japanese exporters geared to fast growing regional emerging markets where the yen's value versus the dollar is not an issue. Inflation is also not an issue for the world's third largest economy," the firm said. In the fixed income space, municipal bond funds had another week of outflows, totaling USD 1.03 billion. US bond funds overall had outflows of USD 611 million, while Europe had their worst week of net outflows since June 2008, with redemptions of USD 1.43 billion. Emerging Investors overall shunned emerging market equities and debt. The rising interest rate environment in China, which could weaken demand for commodities in the months ahead, is putting pressure on Latin America, resulting in the worst net outflow since the middle of the second quarter of 2010. Latin American equity funds had net outflows of USD 471 million, "which extended their longest outflow streak since a 13 week run ended in early July." Chinese equity funds had outflows of USD 309 million, suffering redemptions for the seventh time in 10 weeks. Net outflows from Brazil reached USD 164 million. India equity fund outflows of USD 120 million, made it four weeks in a row of net redemptions. Russia, however, continues to attract in cash, due in large measure to its exposure to energy and commodity prices. Equity funds in Russia took in a net USD 267 million.