Cash is still king

Equity funds continue to post net outflows, save for a few that invest in global emerging markets, according to EPFR Global data.
Cash remained king during the third week of February as money market funds tracked by data provider EPFR Global recorded a net inflow of $17.2 billion, bringing year-to-date inflows to $103.2 billion. Based in Massachusetts, EPFR tracks around $10 trillion in assets in traditional and alternative funds worldwide.

With stubbornly high oil prices reinforcing fears of low growth and high inflation in the worldÆs major developed economies, investors removed another $7.4 billion from equity funds that invest in the US, Japan and Europe. They also reversed their contrarian bets on Mexico and the financial sector, pulled $900 billion out of global bond funds and extended net outflows of high-yield bond funds to 10 straight weeks.

Investors committed some fresh money to emerging markets funds, however, with the biggest share going to global emerging markets equity and emerging markets bond funds. They also committed solid amounts of new money to real estate sector funds and broke the seven-week losing streak for technology sector funds. At the country level, Russia continues to stand out among the emerging markets and Switzerland among the developed ones.

Europe, Japan and US equity funds extended their losing streaks to 25, 10 and five weeks respectively, as year-to-date outflows from these three fund groups pushed over the $74 billion mark. In the case of both the US and the Eurozone, recent economic data is raising the spectre of stagflation as high energy prices fuel inflationary expectations despite slowing economic growth, limiting the options for further interest rate cuts. Inflation in the Eurozone is currently at a 14-year high of 3.2% while prices in the US are growing at an annualised rate of over 4%.

Worries about the full scope and impact of the US subprime debt crisis on EuropeÆs financial sector and its ability to lend are also dogging investor sentiment towards this region. Europe Equity Funds have been hit with net redemptions totalling $40.6 billion and their collective performance year-to-date is off some 11%. At the country level, Swiss country funds fared much better than their French, German, Dutch and British counterparts, absorbing a net $334 million for the week.

Performance among Japan equity funds rebounded during the third week of February as the prospect of sticky US and Eurozone interest rates dispelled fears of further erosion in the yenÆs competitiveness. But that wasnÆt enough to stop investors pulling money out of these funds for the 46th time in the past 47 weeks. Japan is currently viewed as a country dangerously dependent on exports that has slipped into reverse when it comes to structural reforms, fiscal discipline and the unwinding of cross-shareholding deals that insulate corporate managers from activist shareholders, EPFR says.

Three of the four major emerging markets equity fund groups posted inflows during the third week of February, with the diversified global emerging markets equity funds faring best in dollar terms, and Europe, Middle East and Asia equity funds faring best in percentage terms. Latin America equity funds just managed to break their six-week losing streak. But Asia ex-Japan equity funds posted outflows for the tenth straight week.
¬ Haymarket Media Limited. All rights reserved.