Tapering Worries Dampen Fund Flows

Tapering concerns outweigh equity gains as investors pull money out of U.S. equity funds; some flows positive for country funds

With continuing concern over the timetable of tapering by the Fed, investors took some $2 billion out of equity funds for the fifth week in a row, according to EPFR Global in its Friday report. They also pulled about $375 million from bond funds, while pumping $31 billion flow into money-market funds.

Dividend-equity funds in the week ended Dec. 4, though, experienced some inflows, which has been the case for eight of the past 10 weeks.

Country funds remained active, as investors snapped up equity funds in Italy, Spain and Germany.

Many emerging markets saw net redemptions. The Latin American and EMEA equity categories posted outflows of $220 million. Since late February, emerging markets equity funds have had more than $42 billion in net redemptions.

Funds focused on China and Korea did see some inflows last week.

“Current account deficits in South Africa and Turkey, political tensions in North Africa and parts of the Middle East, weaker oil prices and Russia’s stalled economy are among the factors contributing to this outflow streak,” explained Cameron Brandt, director of the Boston-based research group.

Europe-focused funds took in more than $1 billion for the third consecutive week; the inflow streak started in late June. Flows into Germany equity funds, for instance, hit their highest weekly level in more than 17 months.

According to Yardini Research, Europe’s stock markets are up an average 14.1% through early December, while global markets overall had improved 22.6%. Spain is up 16.1%, Germany 17.9% and Greece 29.7%.

Japan’s jump of 46.4% is topped only by Pakistan, which has seen its markets increase 47.1%, Yardini’s group says. In the emerging markets, though, Brazil has fallen nearly 19%, and Latin America overall is down 8% so far in 2013.

The U.S. market, by contrast, has improved 26.6% through Dec. 6, as measured by the S&P 500 Index and tracked by Yardini.

Though investors remain concerned about tapering, according to Tom Roseen of Lipper, they committed $1.5 billion to stock funds in the week ended Dec. 4, the fourth-straight week of inflows into the funds. More than $2 billion, he notes, went into non-U.S. funds, as investors withdrew $573 million from U.S. equity funds, the first outflows from these funds in a month.

Japanese stock funds attracted about $115 million in new cash, Lipper says, the third straight week of inflow. The research firm’s latest figures show that taxable bond funds had outflows of $258 million. Funds with high-yield junk bonds lost $141 million. However, funds with floating-rate bank loans saw inflows of roughly $383 million.

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