Global equity fund inflows declined sharply in the week ending August 20

Global equity fund inflows saw a sharp drop in the week ending August 20, with investors remaining cautious over the tech stock selloff. Investors also showed increased risk aversion ahead of Powell’s Jackson Hole speech this week, buying GEFs worth $2.27B during the week, compared to the prior week’s $19.29B. 

LSEG data showed that U.S. equity funds had a weekly outflow of $2.4B, a reverse of the previous week’s net inflows of $8.76B. Meanwhile, Asian equity funds eased to $70M from $2.08B, while European equity funds plummeted to $4.2B from $7.1B.

The data also revealed that investors withdrew approximately $1.8B in net equity sectoral funds. The tech and financial sectors led the weekly total sales with outflows of $613M and $1.58B, respectively.   

Global bond funds maintain popularity for 17 straight weeks

The data from LSEG confirmed that global bond funds saw their 17th consecutive week of popularity as investors bought over $18 billion worth of these funds. High-yield bonds had inflows of about $3.03 billion during the week, the highest recorded inflow in eight weeks. Short-term bonds also saw inflows of $2.52 billion, recording the eighth straight week of positive flows. Investors also added a combined 29,712 bond funds worth $2.13 billion.

Global investors also bought $13.98 billion worth of money market funds, extending the fund’s inflow streak into three successive weeks. However, the gold and precious metals commodity fund had net weekly outflows of $293 million, ending a 12-week buying streak. Meanwhile, emerging market equity funds exhibited renewed interest with net inflows reaching $458 million, ending two successive weekly outflows.   

Last week’s LSEG data up to August 13 revealed that global equity funds recorded inflows of $19.32 billion, their highest in six weeks. The large inflows reversed the prior week’s outflows of $7.63 billion. Asian and European funds drew net inflows of $2.07 billion and $7.08 billion, respectively. 

The data also showed that global bond funds had inflows of $15.87 billion. Short-term bond funds attracted inflows of $4.42 billion, the second-largest inflow recorded in over 16 weeks. Euro-denominated bond funds saw weekly inflows of $3.3 billion, while corporate bond funds had inflows of $1.37 billion.

International equity funds see more flows than U.S. equity funds

Global equity funds reportedly experienced more flows than U.S. equity funds for the third straight month. U.S. equity funds had outflows of over $23 billion in July. All categories except blends were in the red. Meanwhile, global equity funds saw over $11 billion in net inflows.

One global investor pointed out that weak U.S. equity fund flows suggested investor concern over uncertainties in trade policies. The investor believes this uncertainty is slowing economic growth while increasing volatility in the market. Meanwhile, another investor observed that retail investor behavior had changed during the tech selloff, breaking their 2-month daily buying trend of over $1 billion per day on August 21 to become sellers (-$140M).

Inverse equity funds allegedly saw inflows during the week, but leveraged equity funds experienced the third month of continuous redemptions. Most of the largest leveraged fund outflows were reportedly from tech-focused funds, suggesting a weakened view of U.S. tech stocks.  

Diversifying into non-U.S. assets has reportedly been a growing trend in recent weeks, following years of U.S. outperformance. More U.S. investors are increasingly shifting to emerging-market local-currency bond and global (unhedged) bond funds. Investor flows into these asset classes allegedly correlate well with the strength of the U.S. dollar. A weakening dollar has driven the highest consistent inflows into both funds for years. 

In July, investors reportedly poured nearly $75 billion into U.S. open-ended funds and ETFs. General conservatism and the desire for diversification likely drove the flows, with bond funds leading the way. U.S. investors shifted focus to international assets as all U.S. equity categories saw outflows, except large blends. 

Investors have reportedly continued to buy into less volatile funds such as ultrashort bonds and intermediate core bonds amid market uncertainty in the past few weeks. Intermediate core fund inflows exceeded $20 billion for the second successive month, a feat last achieved in early 2021. Ultrashort bond funds also saw 12 months of inflows, and July’s inflows remained consistent with this pattern.  

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