Investors turn defensive again

EPFR Global analysis shows money market funds are among the big winners while emerging market portfolios are among the losers.
Money market, US equity and US bond funds posted solid returns globally last week while emerging market portfolios were hit by further redemptions, according to EPFR Global.

Money market funds posted a net inflow of $5.9 billion last week, taking their year-to-date inflows back over the $150 billion mark. US bond funds posted inflows for the first time in three weeks while high-yield bond funds also took in fresh money as some investors responded to the influx of better quality credits dropping into the high-yield pool due to the latest round of ratings downgrades.

ôWith the tail-end of the second quarter earnings season fuelling fresh fears about the outlook for global economic growth and banking sector balance sheets, investors were in a defensive frame of mind,ö EPFR says in a report.

Based in Massachusetts, EPFR Global tracks around $10 trillion in assets in traditional and alternative funds worldwide.

Investors also responded to the slump in demand for commodities and energy, removing over $1 billion from energy sector funds, pulling money out of Middle East and North Africa equity funds for the first time this year and extending Brazil equity fundsÆ losing streak to 10 straight weeks.

ôHopes that the worst is over are not completely dead,ö EPFR says.

High-yield bond funds took in fresh money for only the second time in nine weeks, real estate sector funds posted solid inflows and funds geared to some of the more heavily sold Asian markets, such as India, China, Korea and Vietnam, attracted some interest.

Among the fund groups geared primarily to developed markets, US equity funds continued to shine heading into mid-August. Those tracked by EPFR Global recorded inflows for the sixth time in the past seven weeks.

Japan equity funds recorded a third straight week of modest outflows as investors took a more wait-and-see approach to predictions that the recent energy-driven inflationary spike will drive money currently held as cash back into the countryÆs equity markets. Questions about the profitability of Japanese firms have moved to the fore as growth in the domestic economy and several key export markets has turned negative.

The two diversified fund group geared primarily to developed markets, global and Pacific equity funds, recorded outflows with $600 million pulled out of the former, pushing year-to-date outflows over the $6 billion mark. At this point last year this fund group had absorbed $32.1 billion year-to-date.

With some commodity prices hitting six-month lows and the price of oil dropping briefly below $113 a barrel, investors pulled more money out of EPFR Global-tracked Latin America and EMEA equity funds and extended Asia ex-Japan equity fundsÆ winning streak to four straight weeks. The lack of optimism about the global economy, however, saw diversified global emerging markets equity funds post outflows for the ninth time in 10 weeks.

Flows into Asia ex-Japan equity funds again reflected an investor preference for targeted exposure, with new money absorbed by China, India and Korea equity funds offsetting redemptions from Greater China and regional equity funds. Following their seven week, $1 billion run of outflows in June and July, India equity funds have now posted inflows three of the past four weeks.
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