The first quarter of 2014 will maintain the trend of strong fund flow witnessed during 2013, despite the Fed’s recent announcement, notes Societe Generale.

Fund Flow

Alain Bokobza and team at Societe Generale point out the benign market reaction to the Fed announcement points to momentum-led inflows into US equities.

Strong fund flow to continue in 1Q2014

Societe Generale analysts don’t anticipate the strong fund flow trends witnessed in 2013 to be interrupted by the Fed’s recent announcement. On the contrary, the analysts believe the dovish forward guidance is likely to be taken by the markets as a license to pursue assets with the best momentum.

The following table highlights the net inflows witnessed since January 2013 across various asset classes:

Net inflows - Since Jan 2013

The following table captures the total net assets held across various asset classes:

Total net assets

The analysts point out that the big reversal of fund flows took place back in May, when the Fed started talking about tapering.  The following graph highlights net inflows into equity funds (ETFs and Mutual Funds) in both the U.S. and Europe:

US and Europe

The following graph highlights the net inflows into US equities across various sectors:

US-Inflows across sectors

Strong outflows in bonds in UK and Japan

Societe Generale analysts note that since May 2013, cumulative outflows of €137 billion were witnessed from U.S. treasuries while $71 billion flowed out of EM assets. They point out that such simultaneous outflow from EM bonds and equities appears to have been almost unique to EM assets. The analysts believe such an outflow could be explained by perceived country risk and the resulting currency weakness.

The analysts note inflows into Japanese equities continue, following their own path.

However, the analysts note QE led to strong outflows only from the bond side in both the UK and Japan.

The following graph captures the outflows witnessed in Japan’s bond market:

Japan's bond market

While the following graph highlights the strong inflow witnessed in the UK’s equities market:

UK's equity market

Global commodity ETPs

Zooming in on commodity fund flows, Societe Generale analysts examine inflows from commodities. The following table encapsulates net inflows into commodity ETPs by category:

Global commodity ETPs