“Fund Flow Insights – Alert, Best Equity Inflows Since 2004,” a research note by the Citi Global Strategy Team, says the year gone by was notable for some high water marks in terms of fund flows.

2013 highlights

  • Equity funds – Global inflows ($346B), as a percentage of AUM (3.5%), were the highest since 2004 (3.9%).
  • Developed market (DM) equity funds – Had the first year of net inflows ($374B) since 2006.
  • Emerging market (EM) versus DM equity funds – First year (since records started) of positive inflows to DM accompanied by outflows in EM ($27B).
  • Bond funds – Had the first negative inflows year since 2008.

Fund flow triggers

Equities in developed markets attracted funds in a big way after macro risks dissipated in the face of low inflation, easy money policies, low interest costs and growth in business profits leading to stronger corporate balance sheets.

The taper threat lead to apprehensions of tighter monetary conditions and investors fled bonds for fear of rising yields.

Emerging markets were on the back foot because investors took a dim view of rising current account deficits which led to currency turmoil, as well as fears of a stronger dollar due to the taper announcement.

More insights

“However, looking at cumulative flows since start of 2007, equity funds still haven’t recovered outflows suffered during and post the crisis (Figure 1),” observes the Citi report, a comment that puts the above information in perspective.

Fund Flows

So, it appears there’s more room for the switch out from bonds and into equities.

The funds game – winners and losers as a % of AUM

Japan stole the show amongst DM as the country’s all-new ‘Abenomics’ economic policies tanked the yen and fired up Japanese equities. Japanese equity funds swallowed a whopping 29% of AUM, or $45B. Global equity funds and European funds were the next in line with 5% and 4.8% respectively. However, Latin American and CEEMEA were the biggest losers.

2-winners-losers

DM versus EM – cumulative basis

On a cumulative basis, as per the chart below, inflows into DM equities are yet to catch up with the levels of the pre-crisis days, though they have risen sharply in 2013. Cumulative flows to EM equities, on the other hand, do appear to have taken a knock in 2013, but are still nearly flat since 2011.

Fund Flow

Are the ghosts of the crisis laid to rest?

The chart below shows the extent of the recovery in the equity markets since the depths of the crisis in 2008.

From a dismal (nearly) (-) 5% of AUM to upwards of (+) 3% of AUM in 2013, global fund flows into equity show that the crisis is probably a distant blip in the investor’s rear view mirror.

Fund Flow