Developed markets equity investors stepped up their rotation into European assets during the first full week of May, after French voters elected the relatively pro-business Emmanuel Macron president rather than the nationalist Marine Le Pen. Europe and Global Equity Funds enjoyed record setting inflows while both U.S. and Japan Equity Funds saw over $2 billion redeemed.
Regionally-domiciled Europe Equity Funds accounted for two-thirds of the week’s headline number, with U.S.-based funds making up the balance. Retail commitments overall were the largest since the third quarter of 2015. This post-French election surge in flows spread beyond the big regional funds to single country groups. Of the fund groups dedicated to the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) markets, four saw inflows hit their highest level in over a year while Spain Equity Funds extended an inflow streak stretching back to early April.
Managers of Europe Equity Funds with regional mandates have also been warming to the PIIGS markets, with allocations for Italy and Spain rising sharply going into the second quarter.
While money was pouring into Europe Equity Funds, flows to U.S. Equity Funds stumbled late in the week after U.S. President Donald Trump invited comparisons to predecessor Richard Nixon by firing FBI Director James Comey. Daily data showed the bulk of the week’s redemptions occurred on the final day of the reporting period.
Investors continue to gravitate to ETFs; of the actively managed sub-groups by style and capitalization, only Large Cap Value Funds posted inflows.
Yen-denominated redemptions from Japan Equity Funds hit their highest level since late 2014. Those funds have posted an average gain of 7 percent since the third week of April on the back of a strong corporate earnings season, still reasonable valuations and expectations that another U.S. rate hike next month will boost the yen’s competitiveness for Japanese exporters.
The largest of the diversified Developed Markets Equity Fund groups, Global Equity Funds, took in a record-setting $5 billion that lifted year-to-date inflows past the $47 billion mark. That is nearly 10 times the full year total for 2016.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.
