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Among all types of equity funds, those that invest in Japan had their worst week in terms of outflows since the fourth quarter of 2002. Lower US interest rates did Japan Equity Funds few favours as investors factored in a further loss of competitiveness for Japanese exporters, thanks to a yen trading at 106 to the dollar versus 123 at the beginning of the third quarter of 2007. For the second week in a row of successive outflows û which have occurred 43 of the past 44 weeks û the $1.45 billion that investors pulled out from Japan equity funds last week was a new record. Last weekÆs redemptions came in spite of a rally by Japanese equities that boosted the collective portfolios of these funds by 4.58%.
Emerging market equity funds posted collective outflows of $2.9 billion last week, well below the previous weekÆs record setting outflows, with EMEA equity funds the hardest hit in percentage terms and Asia ex-Japan Funds in dollar terms.
ôWhile the headline numbers make grim reading, the outflows from emerging markets equity funds were smaller as a percentage of assets under management than they were during the first week of March, 2007, when they set the previous record in dollar terms,ö says Massachusetts-based EPFR Global analyst Cameron Brandt. ôIf the pattern weÆve seen in the flow data over the past 10 months holds up, itÆs likely that a sizable number of investors will see this as a buy signal.ö
All four of the major emerging markets fund groups tracked weekly by EPFR Global posted net outflows last week, ranging from the $1.49 billion investors removed from Asia ex-Japan equity funds û the seventh consecutive week of net redemptions û to the $226 million pulled out of Latin America equity funds. But that was well short of the previous weekÆs outflows, which totalled a record-setting $10.7 billion for the four fund groups.
Brazil, Russia, India, China (Bric) Equity Funds, which entered the year with considerable momentum, posted their second straight week of substantial outflows. Among funds geared to the individual Bric markets, only Russia equity funds absorbed fresh money.
Investors channelled a good portion of those redemptions into money market and US bond funds, which absorbed a combined $12.9 billion. Financial and commodities funds also posted modest inflows.
Financial sector funds continued their strong run at the start of 2008 as investors committed another $221 million to them ahead of the latest US interest rate cut, bringing year-to-date inflows close to $3 billion. The rate cut, and the dollar weakness expected to come with it, also prompted investors to steer $301 million into commodities funds in order to hedge their exposure to the US currency. But the cut did little for the other interest rate sensitive sector, real estate, as investors pulled $578 million from funds geared to this sector.
Two fund groups geared to classically defensive sectors, consumer goods and utilities, also posted outflows. In the case of utilities sector funds it was the second straight week of $300 million plus redemptions.
ôLast year, utilities were seen as targets for private equity buyouts, which boosted perceptions of their value on several levels,ö says Brandt. ôBut that private equity money is in much scarcer supply these days.ö
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