Hopes that the U.S. Federal Reserve and European Central Bank will tread lightly when it comes to tightening their respective monetary policies helped EPFR-tracked Developed Markets Equity Funds record their 11th inflow in the past 12 weeks during the first week of September, with Global, Japan and Europe Equity Funds recording inflows while U.S. Equity Funds posted a small outflow.
Among US Equity Fund groups, Small Cap Blend and Large Cap Growth ETFs recorded the biggest inflows during a week when funds managed for growth outperformed their value counterparts across all capitalizations. Japan-domiciled U.S. Equity Funds did record their first inflow since early April. Year-to-date, net flows for all U.S. Equity Funds, which were positive to the tune of nearly $33 billion at the end of the first quarter, have been in negative territory since early August.
The week leading into the European Central Bank's first meeting since July saw Europe Equity Funds post modest inflows as investors concluded that the recent strength of the euro, and its potential impact on both the ECB's inflation target and the Eurozone's export competitiveness, will prompt the central bank to err on the side of caution when it comes to winding down its current quantitative easing (QE) program. The ECB left interest rates unchanged, admitted to a preliminary discussion of when and how to taper its QE program and said that decisions about that will likely be taken at its October meeting.
At the country level, investors remain cautious about Italy's prospects despite the improvement in recent economic data and a noticeable reduction in political noise. Italy Equity Funds recorded their fourth consecutive outflow while France Equity Funds, which have benefited from investor perceptions of new president Emmanuel Macron's reform agenda, took in fresh money for the 12th time in the past 14 weeks.
Japan Equity Funds, meanwhile, posted inflows for the eighth straight week. Flows were, however, driven by domestic institutional commitments to a handful of Japan ETFs. Foreign currency flows to Japan Equity Funds have been largely negative since the second week of August thanks to the country's proximity to North Korea and investor skepticism about the durability of recent gains in domestic consumption in light of weak wage growth. "Low wage gains are not just a U.S. story," observed Informa Financial Intelligence Chief Macro Strategist David Ader in a recent note. "Real cash earnings growth [in Japan] has been negative or 0 percent in 9 of the last 12 months."
Global Equity Funds continued their run at the full-year inflow record set in 2015 as the posted their 38th consecutive weekly inflow. Funds with ex-U.S. mandates attracted over twice as much new money as their fully global counterparts.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.
