September 7, 2018

Investor Demand for Nondomestic Equity Funds Diminishes Significantly Over the Summer Months

by Patrick Keon.

For the fund-flows week ended Wednesday, September 5, nondomestic equity funds (including both mutual funds and ETFs) experienced net outflows of $604 million, marking the thirteenth week of the last 15 in which the group has seen money leave its coffers. This streak started with the fund-flows week that ended Wednesday, May 30, and has resulted in total net outflows of $18.1 billion. This activity marked the reversal of a long-term trend. Previously, the group had six consecutive quarters of net-positive flows—for a total intake of $254.6 billion, including net inflows of $65.9 billion for 18 of the first 21 weeks of 2018. Conversely, after five straight quarterly net outflows (Q2 2017–Q2 2018, -$105.9 billion) domestic equity funds have had positive net inflows of $3.2 billion for Q3 2018 so far.

The major contributors to the net inflows for nondomestic equity funds during their five-quarter hot streak (Q1 2017–Q1 2018) were funds in Lipper’s International Multi-Cap Core Funds (+$157.2 billion) and Emerging Market Funds (+$60.8 billion) peer groups. These two groups accounted for nearly 86% of the total net inflows for the period. Since then, International Multi-Cap Core Funds has continued to take in net new money (+$22.0 billion) but at a much slower rate, while Emerging Market Funds has actually seen net money leave its coffers (-$3.9 billion). Other contributors to the negative net flows we’ve seen for nondomestic equity funds since May 30 have been the European Region Funds (-$10.4 billion), Japanese Funds (-$4.8 billion), and Global Equity Income Funds (-$3.6 billion) peer groups.

The hardest hit Lipper peer groups among domestic equity funds during their five-quarter downturn were Equity Income Funds (-$53.2 billion), Large-Cap Core Funds (-$38.6 billion), and Multi-Cap Growth Funds (-$31.7 billion). Leading the way for the group’s resurgence in Q3 2018 have been S&P 500 index Funds (+$6.4 billion), Healthcare/Biotech Funds (+$4.3 billion), and Small-Cap Growth Funds (+$3.2 billion).

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