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Some Sector Funds Are 'Oversold,' Japan Funds Remain Attractive

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The number of major fund groups posting inflows fell to five in the week ending July 16, reports EPFR Global of Boston. “Against a backdrop of sharply slowing growth in the Eurozone and China, fresh turmoil in U.S. mortgage markets and another round of uncomfortably high inflation numbers, investors pulled $2.1 billion out of global-equity funds and global-bond funds, and this extended the bond funds’ losing streak to 23 straight weeks. This pattern also saw outflows from emerging-market equity funds for a sixth consecutive week, according to EPFR Global.

Some money did, however, find its way into more defensive fund groups, such as money-market and U.S. equity funds. These groups took in $9.04 billion and $2.63 billion respectively, as health-care funds experienced their best week since the middle of the fourth quarter in 2007. And some investors went bargain hunting by investing in financial, real-estate, U.S. municipal bond and Vietnam equity funds.

More striking, the Middle East and Africa funds have continued to maintain a steady stream of inflows every week year-to-date, with funds focusing on Turkey, Australia, Austria and Italy absorbing new money. But for the third week in a row, equity-fund groups geared to the BRICs (Brazil, Russia, India and China) recorded outflows.

In mid-July, Japan-equity funds posted outflows for the first time in 11 weeks. “Sentiment towards this market remains, however, relatively positive thanks to the perception its central bank will not be raising interest rates any time soon; its investors are taking another look at domestic equity and its major exporters remain very competitive,” explains EPFR Global.

According to Lipper, Japan funds are down 9.63 percent through July 24. Emerging-market funds have declined 17 percent, while European funds have slumped 16 percent. EMEA (Europe, Middle East and Africa) equity funds are the only major equity fund group to record net inflows year-to-date, EPFR Global reports.

As for sector funds, “U.S. officials have made it very clear they’ll do all they can to keep the transmission lines open between the financial sector and home-buyers, reinforcing the belief among a significant number of investors that these sectors — financials and real estate — have been oversold,” notes EPFR Global senior analyst Cameron Brandt.

Janet Levaux, MBA/MA, is the managing editor of Research; reach her at [email protected].


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